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Why Has Home Insurance Gone Up?

Home insurance is now outpacing motor insurance by the rate of increases over the last year.¹ UK home insurance premiums rose by 3% in the first quarter of this year (January 2024 to March), and many people have felt the pressure of meeting this increase. According to the Association of British Insurers (ABI), premiums increased to an average cost of £375 per year for combined buildings and contents cover. Q4 (October to December) of 2023 saw an increase in home insurance of 4%, and overall, from the first quarter of 2023 to the first quarter of 2024, home insurance premiums rose by 19%.²

So, if you are wondering why home insurance has gone up, there are several factors that contribute to rising premiums which include: extreme weather (including a succession of severe storms), the war in Ukraine, inflation, and an increase in the number and additional cost of claims.

Here are the factors explained:

How many weather-related claims were made in 2023?

According to data from the ABI, weather-related damage claims made in 2023 were the highest ever recorded, amounting to £573 million. That figure includes claims which have not yet been settled. In 2022, the figure for weather-related claims was £421 million. This huge rise in claims has been attributed to storms which battered the UK at the tail end of 2023. Storms Babet, Ciaran, and Debi, swept across the UK last autumn creating 36,000 damage claims for debris and hurricane-strength winds, all of which amounted to £133 million. Following on from the storms, flooding totalled £286 million, and claims for burst pipes relating to a cold Q1 in 2023, resulted in £153 million of claims, again, related to extreme weather. All these elements created a ‘perfect storm’ for both policyholders and insurers.³

War in Ukraine

Ukraine is one of the highest producers of steel in the world and plays a major role in the ferrous metals industry.⁴The Donets Basin region produces cast iron, steel pipe, and rolled steel, all of which are materials and components used in the construction industry. Ukraine is also a top-ranking producer of non-ferrous metals, including copper, lead, zinc, and nickel, also used in building.⁵The Russian invasion of Ukraine in 2022 has had a dramatic impact on Ukraine’s production and distribution of raw materials, leading to a shortage of building materials and a highly competitive market, which in turn has seen price increases.

Energy costs have also increased due to the invasion of Ukraine, which in turn, has seen production and transport costs driven up. Additionally, conflicts in the Middle East have interrupted supply chains and shipping channels, which have contributed to rising costs of distribution and transportation.

The effect of the conflict has been felt by the construction industry which has already seen rising materials and labour costs, which results in rebuild and repair costs increasing. According to the House Rebuilding Cost Index (HRCI) which tracks the costs of raw materials and workforce, the Index increased by 21% in the last two years.⁶ Combine this with more claims following on from extreme weather events, and the cost of home insurance claims increases to absorb the high prices of repairing, renovating, and rebuilding.

Inflation and Interest Rates

Inflation has now dropped to 2% as of June 2024. Between 2022 and 2023 however, inflation hit a sky-high rate of over 9%, reaching 11.1% in October 2022.⁷

August 2023 saw the interest rates hit 5.25%, until August 2024, when the Bank of England decided to cut interest rates down to 5%. High interest rates impacted on mortgage rates which reflected high inflation and interest rates.⁸

For many homeowners the rate of inflation outpaced salary increases. This meant that with the average mortgage repayment rising from £667 in 2019, to £1,075 per month, many policyholders are struggling to make ends meet. When financial pressures build up, corners are cut, and underinsurance becomes more prevalent.⁹

The Pitfalls of Underinsuring Your Property

Avoid underinsuring to save on premiums. An underinsured property can cause significant problems should you need to make a claim. If your home is underinsured by 30% for example, your insurer is likely to pay out a sum that equates to this 30% shortfall and you will receive a payout that might not cover the cost of the damage or destruction to your property. In some cases, your claim might not be upheld.

Making Smaller Claims

When homeowners have less disposable income to spend on repairs, they can often make smaller claims for relatively minor damage. A collection of smaller claims can also contribute to higher premiums as related administrative costs can be passed to the policy holders.

Insurers must meet legitimate claims by maintaining sufficient fund reserves whilst meeting policyholders’ expectations of competitively priced premiums.

If you are concerned about your home insurance premiums and would like to discuss your policy with one of our advisers, please don’t hesitate to get in touch. Talking to an insurance expert regarding your cover is always advisable and we will work hard to provide you with information and options you need to make an informed decision.

If you would like a quote for insurance or any other type of cover, please contact us.