The Latest Insurance Price Increases

We predict that the insurance industry will continue to increase both home and car insurance prices due to flooding.

Home insurance (that's buildings and contents insurance) has for some years been very profitable for insurers. For every £1 taken in premiums, insurers have just been paying out 54p in claims, leaving a nice sum for them even after all their other expenses (heating, lighting, champagne, etc).

However, the flood-claim total last year of £3bn is significantly higher than it was just a few years ago. As property-insurance premiums received are just £8.5bn, that £3bn is a lot of money being swallowed up by just one type of claim. Increased flooding has already affected prices, and it will continue to do so. Obviously the hardest hit will be those in the flood-risk areas, but most of us will have to subsidise the cost to an extent.

This year many of us have seen home-insurance renewals go up roughly in line with our salaries at 4.3% for buildings and 3.3% for contents. Buildings-insurance premiums are now £210 up from £201, and contents is £129 up from £125.

You can still do a lot better if you shop around though, as this table shows:

Average home-insurance prices, July 2008

Looking at the third column, what I find interesting is that the average combined shop-around price of £193 is just £5 cheaper than the average shop-around price if you buy buildings and contents separately: £126 + £72 is £198.

Bearing in mind these are average prices (i.e. some households will pay more and others less), this says to me that even more people these days will save money by buying buildings and contents separately. When you get a quote, get separate and combined quotes.

Moving on to car insurance now. Insurances are cross-subsidised, which means when big events like major flooding occurs, we can expect not just our home insurance but others, such as car insurance, to go up too. This happened last year and could happen again. Insurers also claim that it's getting more expensive to deal with motor-accident claims.

12 months ago, your renewal price for comprehensive insurance typically cost £664. Now it is £702. Third-party, fire and theft (TPFT) policies used to cost £790 on average and they are now £884. These are big rises of 5.8% and 11.9% respectively.

Don't be confused. The reason TPFT is more expensive on average is because it tends to be younger drivers that take out such policies. They seem to think that there's no point covering their own cars comprehensively because they're so old and battered that they're held together by shoelaces (cheap ones) anyway. They're usually right, but don't overlook this strange anomaly in insurance pricing.

Here are the average savings if you shop around, instead of simply renewing with your existing insurer:

Average car-insurance prices, July 2008

It's amazing how much cheaper most people will find it if you shop around: £225 to £300 off!

Remember all these figures are averages. For some people the shop-around car insurance price will be no more expensive this year. Young drivers are the most likely to see higher prices this time round, although if you've had no claims this year, your increased no-claims bonus and the fact you're another year older will hopefully reduce your premium overall.

All average insurance prices are taken from the AA's latest Insurance Premium Index.