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Home insurance rises as paying monthly 'makes matters worse'

Home insurance rises as paying monthly 'makes matters worse'
Matt Browning
Written By:
Matt Browning

The cost of home insurance premiums are a fifth (19%) more expensive than a year ago, data reveals.

In the first quarter of 2024, the cost to insure your home increased by 3%, marginally less than the rise during the previous three months (4%), according to the Association of British Insurers’ (ABI’s) research.

It means the average home insurance policy, with both buildings and contents included, is £375. But, this remains lower than the 2016 peak, where a policy cost an average of £419.

Households wanting building-only cover felt a 5% surge, with premiums setting you back an average of £298, but contents-only cover stayed at £132.

The price increases follow a record year of claims made by families in damaged homes, which came to £573m in 2023. Storms Babet, Ciaran and Debi contributed a total of £352m worth of damage to homes in the UK in the last three months of the year.

However, while extreme weather events like storms will lead to seismic insurance claims, it is the everyday threat of flooding that is most likely to hike household insurance costs.

‘Flood defence investment lags behind’

Premiums will be more expensive for households living in areas where flooding is a risk, but Louise Clark, ABI’s policy adviser for general insurance, says the UK is behind other nations in its defence of wet weather.

Clark said: “The longer we put off vital investment in flood defences, the more that flood damage will ultimately cost the consumer.

“An increase of the tax on insurance policies – Insurance Premium Tax (IPT) – was earmarked by the Government in 2016 to fund flood defences. This tax brings in billions for HMRC, yet flood defence investment lags behind.

“There are other important steps we need to consider too, including reform of planning laws to prevent homebuilding on high-flood-risk areas and a greater focus on climate-resilient properties.”

Monthly premiums ‘same as expensive credit card’

Meanwhile, Rocio Concha, Which? director of policy and advocacy, pointed at the difficulty many homes face making claims on “good-quality home insurance”, as well as the ongoing issue of monthly premiums costing excessively more than the lump sum alternative.

Concha said: “Making matters worse is the high cost of paying monthly for cover for customers who can’t afford to pay in one annual lump sum.

Which? research has found that with some firms, paying monthly is comparable in cost to expensive credit card borrowing – even though the credit risks for insurers are comparatively moderate.”

The consumer champion, as it did for car insurance premiums, called on the Financial Conduct Authority (FCA) to “take swift action” on firms that penalise families who cannot pay a premium in one lump sum.

Concha added that the regulator needs to make clear that “customers paying monthly with excessive interest rates to make higher profit margins does not meet fair value requirements.”