Latest figures from the AA show that the cost of home insurance has fallen in the last year, providing some welcome respite for households battling with rising inflation
and higher bills. However, it could be a definite game of two halves, as indications suggest that prices could rise in the year ahead.
The AA British Insurance Premium Index shows that the typical quoted premium for a new buildings and contents policy has fallen by 12.2% over the last year – despite rising by a marginal 0.3% in the last three months – to stand at an average price of £157.27. The cost of standalone buildings and contents policies has also fallen, offering cost reductions no matter what your circumstances may be.
Indeed, the Shoparound quoted premium (the average of the five cheapest quotes identified) for buildings cover fell by 1.7% over the year to £114.43, despite rising by 1.1% over the last three months. Meanwhile, the cost of contents cover fell by 10.7% over the year, and even by 5.7% over the last three months, to stand at £60.69.
These are welcome figures, particularly after a year "when home insurance has not been far from the headlines", said Michael Lloyd, the AA's insurance director. "It began with more than 16,000 homes flooded, while in April, Flood Re, the Government supported scheme to deliver affordable home insurance for households at flood risk, was launched.
"Insurance Premium Tax (IPT) also increased to 10% from October, and will rise again to 12% in June 2017. Yet despite these pressures, competition has kept premiums down."
However, he cautions that this can't last much longer, particularly with the latest IPT rise – the third in little over 18 months – on the horizon. This could mean that consumers end up paying the price, with Michael believing that premiums are unlikely to fall much further.
"Home insurance isn't subject to the same kind of pressures faced by motor insurance, such as whiplash injury claims, but a report by analysts Ernst & Young (E&Y) last year suggested that 2017 will see home insurers making underwriting losses as costs of claims overtake premium income," he said. "Insurers have been using their reserves to help stay competitive, which is unsustainable in the longer term."
Add to that uncertainty over the long-term impact of leaving the EU, which could include a weaker pound and continued low interest rates, and it "all points to the likelihood of premium increases".
But, even if price rises are on the cards, that doesn't mean you should skimp on cover. "In a culture where many hard-pressed families simply buy on price, it is important that they make sure the cover they buy meets their needs," said Michael. "Families must make sure they properly calculate the value of their contents to avoid under-insurance.
"Informal industry estimates suggest that up to a third of those who have insurance are under-insured. This means that in the event of a large claim, they are likely to find the pay-out is reduced by the shortfall of cover."
So don't be underinsured! You wouldn't want the worst to happen only to find that your policy doesn't pay enough to put things right, which means it's vital to make sure you're getting the cover you need. This doesn't mean you have to spend a fortune, however – use our insurance quote comparison tool to find the cover you need at a price to suit, and take advantage of low premiums before they start to edge up.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.