HOME INSURANCE PREMIUMS RISING, ACCORDING TO AA INDEX

Washout summer brings home insurance premium increases

AA urges Government to make flood defence investment a priority

The latest benchmark AA British Insurance Premium Index shows that over the third quarter of 2012, the average insurance quote for both home buildings and contents cover has risen following a washout summer of storms and flood.
 
According to the Shoparound summary, which is an average of the five cheapest quotes for each property in a country-wide basket of risks, the cost of a buildings cover rose 2.4% to £181 over the three months to the end of September (5.2% over 12 months), while contents cover rose 1% to £242 (7.2% over 12 months).
 
Simon Douglas, director of AA Insurance, says that the wet summer, which according to the Association of British Insurers has cost insurers in excess of £400 million, is a sharp reminder that the industry must be prepared for more of the same over coming years.
 
The Environment Agency predicts that heavy rainfall will become three or four times more common over coming decades, increasing flooding tenfold. Meanwhile, the Climate Vulnerability Monitor, a report on the worldwide effects of global warming published in September, suggests that the cost of flood damage in Britain is likely to triple by 2030.
 
“I am very concerned that no agreement has yet been reached in finding an affordable option to the ‘statement of principles’ between the insurance industry and the Government, which ensures that families in flood-prone properties can continue to obtain flood cover.  This expires in June next year and if no agreement is reached soon, could lead to the most vulnerable homes becoming uninsurable.
 
“To put this into context, insurers measure flood risk in terms of events likely to happen over a period of years.  Even if a home is at risk of flooding once in a century, given that the average cost of repairing a flood-damaged property is £20,000 that is the equivalent of £200 per year, on top of the cost of covering other risks.”
 
Mr Douglas points out that flooding is extremely costly in terms of damage to infrastructure and disruption to the economy, as well as to families’ homes; yet investment in flood defences has also fallen by more than 20%.
 
“It’s vital that the Government and local authorities make tackling the problem at source by investing in flood defences a priority.
 
“It’s hard to think of a better return on investment.”

Mr Douglas points to the £38 million that was spent on flood defences in Carlisle following devastating floods there in 2005. Last month, although some properties in the region were flooded following exceptional rainfall, the new defences kept around 1,500 homes in the city dry. 
 
“That represents a return of at least 100% in terms of the cost of mopping up and damage to property that has been saved.” 
 
Regional trends – Shoparound Index
 
Buildings
Every region of the UK has seen premiums rise.  The most expensive region to insure a home is London and the South East, with an average buildings premium of £200, an increase of 2.9% over the quarter.  The biggest regional premium increases were Yorkshire and East Anglia, which saw premiums jump 3.5% to £177. Wales and the West Country remain the cheapest region to insure a home with an average quoted premium of £157, up 1.1% over the quarter.
 
Contents
The highest quoted Shoparound premium for contents cover is in the Central and North West England with at an average of £101, an increase of 0.7% over the third quarter of 2012, marginally higher than Yorkshire, which saw premiums rise 0.9% to £100.  In Wales, the average Shoparound quote for contents insurance fell 0.6% to £84.  The cheapest regions to insure home contents are Scotland and the West Country, each £79. 
 
Home Insurance premium movements: Shoapround Index