The Rising Cost of Home Insurance

Published: Monday 08th January 2024
In recent years, homeowners across the UK have experienced a notable increase in their home insurance premiums. This surge in costs has left many puzzled and concerned about the factors driving this trend. As a trusted insurance broker, we feel it’s our responsibility to shed light on the underlying causes and provide you with valuable insights to help you make informed decisions about your home insurance. In this blog, we’ll explore the reasons behind the rising home insurance costs in the UK and offer some practical advice on how to navigate this challenging landscape.

A few facts from the Association of British Insurers (ABI)

The Surge in Home Insurance Payouts

In the second quarter of this year, ABI’s data revealed a noteworthy increase in home insurance payouts. Claims paid out amounted to £782 million, marking an 11% surge compared to Q2 2022. This rise can be attributed in part to an increase in subsidence claims stemming from last year’s unprecedented heatwave, which required a period of careful assessment and monitoring to determine the extent of damage. This has resulted in costs being accumulated within a small period of time, due to the time they were submitted, fully assessed and approved.

Between April 1st and June 30th

Claims were primarily disbursed to assist customers dealing with fire, theft, weather-related incidents, escape of water, subsidence, and accidental damage. This translates to an average of £8.6 million paid out each day during the second quarter.

Subsidence payouts saw a substantial increase during this period, reaching £54 million, a 21% surge from the £45 million paid in Q2 2022. This spike reflects the surge in claims following the previous summer’s heatwave, necessitating a thorough monitoring process to determine the best course of action.
The average claim paid out experienced a notable increase of 24%, reaching £4,300 compared to the same period last year.

ABI noted that for the third consecutive year, property insurers paid out more in claims than they received in premiums. In 2022, for every £1 collected in home insurance premiums, £1.22 was paid out in claims and associated expenses. This trend highlights the challenges faced by insurers in balancing costs and providing adequate coverage for policyholders.

During April to June, an average of £8.6 million was disbursed each day to assist homeowners dealing with fire, theft, weather incidents, escape of water, subsidence, and accidental damage.

So what’s really impacting these figures?

Climate Change and Extreme Weather Events

One of the primary drivers behind the escalating home insurance costs in the UK is the changing climate. Over the past decade, the country has experienced a noticeable increase in extreme weather events, including floods, storms, and heatwaves. These events have led to a surge in insurance claims, prompting insurers to adjust their pricing models to account for the heightened risk. As a homeowner, it’s crucial to be aware of your property’s susceptibility to these natural disasters and take appropriate measures to mitigate potential damages.

Escalating Construction Costs

The cost of materials and labour for property construction and repairs has been significantly rising. This is partially due to inflation, but also attributable to supply chain disruptions and increased demand in the housing market. As a result, insurers are factoring in these elevated costs when determining policy premiums. To offset this, homeowners should consider implementing preventative measures, such as regular maintenance and investing in resilient building materials, to minimise potential damages.

Technological Advancements and Smart Home Integration

The abundance of smart home technology has revolutionised the way we secure and manage our properties. While these advancements provide numerous benefits, they can also lead to higher insurance premiums. Insurers may view homes equipped with sophisticated security systems, surveillance cameras, and other smart devices as higher value, potentially increasing the replacement cost in the event of a claim. If you’ve invested in these technologies, it’s essential to inform your insurer so they can accurately assess your property’s value.

Increased Instances of Fraud and Cyber Threats

The digital age has brought about new challenges for insurers. With the rise of cybercrime and fraudulent activities, insurers are faced with additional costs associated with investigating and mitigating these risks. Consequently, premiums may increase to cover these potential losses. As a homeowner, it’s important to be vigilant about cybersecurity and take measures to protect your property and personal information.

Property insurers faced challenges for the third consecutive year, paying out more in claims than collected in premiums. In 2022, for every £1 collected, £1.22 was paid out in claims and associated expenses.

So let’s summarise this

While the rising home insurance costs in the UK may seem daunting, it’s crucial to remember that these adjustments are often made in response to legitimate factors impacting the industry. By understanding the underlying causes and taking proactive steps to mitigate risks, homeowners can effectively navigate this landscape. Consulting with a trusted insurance broker, like us, can provide invaluable guidance and help you find the most suitable coverage at the best possible rates. Together, we can work towards securing your home and peace of mind.

Rising material and labour costs for construction and repairs, influenced by inflation, supply chain disruptions, and increased housing market demand, contribute to elevated home insurance premiums.
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