The cost of living crisis is affecting households across the UK, and like most things insurance premiums are continuing to go up. However, insurers often won’t tell you why, so let’s look at a few possible reasons why you might have seen the cost of your policy go up at renewal.
The most obvious reason that your premium may have gone up is because you’ve made a claim. Most people would expect this to happen, but the reason behind it isn’t always as straightforward. Depending on the type of claim, it may have caused the price to go up in its own right (i.e. if the risk may happen again, like a flood). Usually though, the rise in cost is due to losing your no-claims discount. Some insurers may only reduce your discount marginally due to your longer tenure with them, which is why it often ends up being cheaper to stay with the same insurer after a claim, as a new policy with someone else would earn zero no claims discount.
If anything about your property changed through the year, for example adding an extension or an extra bedroom, then it may not have impacted the price fully until it comes to renewal. These again tend to be more obvious to notice given the literal change in risk from the size or nature of your home.
There are many factors that affect pricing of an insurance policy that could be beyond the property itself. Things like your employment status or position can affect some insurance policies, and changes to who is living in the property or indeed their ages will also impact the pricing slightly.
Flooding in the local vicinity is the most common cause for this increase, as it demonstrates to the insurer there may be increased risk of flooding at your property. However, there are lots of data streams that impact home insurance pricing relating to your local area, including crime rates and other data that customers wouldn’t have the same level of access to.
Renewing an existing policy shouldn’t cause any issues in this sense; in fact, the premium can often come down due to an increase in no claims discount for having continuous cover in place. However, if you had previously cancelled cover and are now coming to take out a new policy, then you might find an increase from what you expected. This could be because the insurer isn’t willing to carry over a no claims discount if you’ve had a gap in cover, and it may be because a recent claim will be handled differently with a new insurer compared to the one who was paid the claim already.
Like all other areas of life, insurers aren’t immune to rising prices themselves. This means that it has been more expensive to pay out claims (building materials and suppliers are costing more) and the cost of servicing their customers (paying staff, IT and other administrative costs) have also gone up. Ultimately that means that some of the rises are passed onto customers as well, but this shouldn’t be specific to just your policy.
Thankfully in the government’s last budget, we didn’t see any changes to Insurance Premium Tax. The last change was in June 2017 when it increased to 12%, however it isn’t beyond the realms of possibility for a government that needs to plug a financial hole to contemplate raising this further in the future.
The Financial Conduct Authority regulates the insurance industry and regularly introduces new legislation that govern what insurers can and can’t do. Last year for example, they changed the way that home insurance had to be priced for new customers compared to old customers (see our article here) and they mandated the insurer demonstrated that their products provide ‘fair value’ (see our other post here). In the coming years they are implementing a ‘Consumer Duty’ to put customers’ outcomes at forefront of business. At times though, these changes can impact insurers in a multitude of ways which mean that prices for some customers go up more than others, at least in the short term.
The last reason we’ll cover, and possibly the hardest to realise or accept in many cases, is that insurers as a business decide where in the country or what type of properties they want to insure and which they don’t. If this changes over time, you might find an otherwise completely unexplained price rise to your premium at renewal. This is likely because they don’t want to decline to renew your policy.
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