Home insurance still good value, despite premium rises

The first quarter of 2009 saw the average quoted premium for an annual buildings insurance policy rise for the eighth successive quarter, adding a further 50p and taking it to a new high of £218.53, according to the AA's benchmark British Insurance Premium Index.

Over the past year, the average cost of buildings cover has leaped by 8.0 per cent - the biggest annual jump since the Index started in 1994.

The average quoted premium for a home contents insurance policy rose more sharply, by over £3.00 to £126.34, reversing the downward trend of the previous six months,

The cost of a combined home and contents policy also rose slightly, to an average of £292.54.

The Index is calculated by averaging premiums quoted from 75 insurance providers on a basket of 750 ‘customers'.

The Shoparound index, an average of the lowest three quotes for each ‘customer', featured sharp rises for buildings, contents and combined home insurance policies. This suggests that there are fewer cheap deals available. Nevertheless, despite the rises home insurance continues to offer good value with premiums having risen by only a few pounds since the Index started in 1994.

Simon Douglas, director of AA insurance, points out that historically, home insurance has not made the underwriting losses that have been a feature of the car insurance sector.

"However, this is changing: even though house prices have been falling, the cost of rebuilding and repairing homes to the higher standards required by building regulations, has been steadily rising.

"Also, the recent harsh winter brought an upsurge in claims for buildings damaged by snow and ice while the legacy of the 2007 floods remains."

While the relative cost of buildings cover has risen significantly since July 2008, contents premiums have been falling. "Although contents cover remains competitive the average quoted premium has risen by nearly 1 per cent per month over the past quarter, which is an unusually sharp increase," Mr Douglas says.

"Part of the reason is a record rise in the number of fraudulent claims made. Last year, the industry detected 55,000 false or exaggerated contents insurance claims. Fraud thrives during times of recession and the inevitable result is an increase in premiums although the insurance industry is working hard to limit the impact of fraud on the cost of insurance for honest householders.

"Rather than rely on their mortgage providers home owners are increasingly likely to shop around for cover. Despite the upward premium trend, there are still good insurance deals to be done and brokers such as AA Insurance are well placed to offer them."