DON'T BURY YOUR HEAD IN THE INSURANCE SAND
Premiums look set to rise but Peter Ranscombe offers up some sage advice
It’s the moment that so many of us dread – we hear the post thump onto the door mat and we flick through the envelopes to find that annual horror show waiting for us. It’s time to renew our insurance policy.
Whether it’s home insurance or car insurance, pet insurance or travel insurance, there’s always that sinking feeling as we open the envelop to read the quote. By how much has our insurance gone up this year?
Then the guilt sets in. We know we should shop around, we know we should look for a better deal, we know we should at least fish last year’s policy out of the drawer or the cupboard or the pile of papers on top of the fish tank and compare the figures.
Then the phone rings or the door goes or the kids scream for attention and the renewal reminder gets forgotten, with a monthly direct debit or an annual automatic credit card payment taking care of it. Life moves on – until the next letter arrives.
Yet maybe now is the time to take control and check by just how much your insurance costs – or premiums – have risen. Experts have warned that a number of factors are already starting to push up prices.
Figures from price comparison website Moneysupermarket showed that home insurance premiums hit a seven-year high last summer, although prices dipped slightly during the following nine months. More accidental damage claims on contents policies during lockdown have been blamed as one of the factors pushing up costs.
The pandemic has also affected car insurance costs. With fewer people driving during the restrictions, there have been fewer accidents, allowing insurers to lower the prices of their policies, with more competition also keeping premiums supressed.
Longer term, prices look set to rise. Flooding in Germany and other parts of Europe over the summer has highlighted how insurers are now having to take climate change into account.
‘These floods used to be deemed to happen once in 200 years – now, that’s out the window,’ explains Ritchie Sherret, director of brokerage firm Hendricks Insurance. ‘Insurers are going to have to start pricing these events into their premium costings.’
Other factors are also at play. The fall-out from the 2007-08 global banking crisis is continuing to have an affect on the financial services sector.
Just like regulators required banks to hold more
money in reserve to cope with any future crises, insurance companies have been ordered to keep more cash to hand as well, under rules known as ‘solvency II’. In the past, investors were prepared to pump money into insurance companies because they would get a good return, but low interest rates have meant insurance is now a less attractive proposition, and so insurers need to put up their prices for consumers instead to build up their reserves.
Following Brexit, the UK Government is reviewing how the
“People are burying their heads in the sand when it comes to insurance
‘solvency II’ regulations should be applied in Britain, due to differences in how our insurance market operates compared to the continent. Insurance companies are big shareholders in other businesses, and the Association of British Insurers (ABI), their trade body, has pointed out that lowering the amount of money firms need to keep in reserve could free up cash for them to invest in other businesses, helping to grow the economy.
Time will tell if the Treasury makes any major changes, but the wider trend is for costs to go up in the short term. Yet, even without rising premiums, it appears that some people are simply burying their heads in the sand when it comes to insurance.
A report by Nelson Insurers found that one in four homes in the UK don’t have any insurance, representing £1.56 trillion of property. Britons are ‘dicing with disaster’ by not insuring their homes, according to Simon Bath, whose company has created Moveable, an app that guides customers through the processes of buying and selling property and helps them to compare prices on services such as insurance.
While some purchasers will be able to buy property without a mortgage, he points out that all UK mortgage companies require homeowners to have buildings insurance in order for them to get a loan. Ultimately, some mortgage lenders are handing over that money without checking if borrowers have insurance in place.
Bath points to the low levels of commission that mortgage brokers receive for selling home insurance – compared to commission payments on mortgages, conveyancing, and life assurance policies – and so the option often slips down their list of priorities. On the conveyancing side, he says solicitors can’t be seen to favour one insurance policy over another and so often don’t remind their clients to buy insurance.
‘As a consumer, it feels like a piece of homework having to go and get insurance,’ Bath adds. ‘When you fill in forms for quotes online, before you know it, you’re being asked complicated questions about the locks on your front door.
‘That’s quite off-putting. Some providers offer a much shorter list of questions to give a home insurance quote, so that’s where I think the market is going.’
Sherret highlights the benefits of going through an insurance broker, which will help to get the correct cover. ‘Using a broker is your first line of defence – if you go online then it’s like having a go at fixing your plumbing yourself instead of using a time-served plumber,’ he adds.
Looking further ahead, the emerging area of financial technology or ‘fintech’ could bring down insurance costs in the longer term. ‘The days of getting an annual policy will be gone,’ predicts Sherret.
‘Instead, you’ll be paying for your motor insurance based on the number of miles you travel, because you’ll have technology in the car to record your trips. With your home insurance, you might get a cheaper rate while you’re in your house because the risk is lower than when you’re away.’