None of us likes it, of course, when the things we need go up in price. There are ominous signs that this might be the case with insurance premiums too. A story in the Guardian newspaper on the 11th of July 2021, for instance, noted that home insurance premiums have been rising steadily in recent years.
A report on the Consumer Intelligence website on the 27th of May 2021 predicted that further price increases are imminent.
None of this will be welcome news to policyholders – but the following might help to understand the reasons behind the expected increases in the price of premiums.
But before we consider the reasons for an insurance premium price rise, please let us reassure you that at UKinsuranceNET, we always strive to always find you the most appropriate cover for your needs at the right price.
While we cannot control the prices set by insurers for their products, we can, as a broker, aim to find you the most cost-effective insurance solution.
So, let’s look at some of the reasons behind a potential insurance premium increase …
Working from home
The Association of British Insurers (ABI) has put its finger on one of the possibilities for a change in the price of your home insurance – quite simply, because of the likely changes in the way in which you use your home.
The ABI recognises that, during the successive lockdowns of the pandemic, many people will have been working from home – and a number of these may have started to run a business from home. Sometimes, this might lead to a rise in premiums due to factors such as:
- you having business visitors to your home;
- your business providing services (such as hairdressing or childminding) in your home;
- your storage of certain goods and products (especially those that are hazardous or flammable);
- adaptations to your home to accommodate business operations;
- you simply being at home more often and therefore, more likely to cause accidental damage.
If any of these circumstances apply, or any others which you think might affect your risk you are advised to discuss the changes with your insurer – and be prepared for possible increases in your home insurance premiums to reflect the enhanced risks involved in your working and running a business from home.
Related to the aftermath of the pandemic is the overall economic situation in the UK and the rising spectre of inflation. The rate of inflation jumped to 4.2% in October 2021, says the website Trading Economics – the highest it has been since December 2011 – with an expected rise to 5% in the spring of 2022.
The price of insurance premiums is closely related to the cost of settling claims for insured losses or damage. Inflationary pressures increase the costs of repairs and replacements made under the terms of your home insurance and this, in turn, can affect the cost of your insurance premiums in several ways:
- according to the website Statista, average weekly earnings in the UK grew by 7.2% in the three months ending August 2021, compared with the same month in 2020;
- higher wages mean higher costs in transporting the goods and materials required to meet the needs of your insurance claims;
- higher earnings also see increases in the cost of many of the services you might need in the settlement of a claim – the architects and engineers planning repairs and reinstatement of your damaged home, for example, or the solicitors you might need to instruct in the pursuit of your claim;
Availability and cost of materials
- it is not just labour costs that may rise, but also the price of the supplies and materials themselves;
- an article by financial conglomerate Bloomberg on the 2nd of November 2021 warned that global supply chain problems are responsible for shortages that are already driving prices higher and jeopardising the recovery of economies from the effects of the recent pandemic;
Labour and the freedom of trade
- rising wages and the higher cost of labour, together with the reduced availability and increased cost of supplies and materials have a knock-on effect on the availability – and cost – of the labour needed to make repairs and reinstatements under insurance claims against your damaged home;
- compounded by global supply chain problems, the higher cost of labour and the restrictions on international and domestic trade, all push up prices – and with that increase, an increase in the premiums insurers need to charge to cover their expenditure on the settlement of insurance claims;
The rising cost of consumer goods
- finally, it must be recognised that inflation affects prices across the board – including all those consumer goods comprising the contents of your home;
- your contents insurance is designed to safeguard those contents against theft, loss, and damage, of course, but if you make any such claim, your insurer is faced with higher rates of settlement required to cover the repair or replacement of lost or damaged items;
- the only means by which your insurer can cover those increased costs is to raise the revenue received from premiums – quite simply, an increase in the price of premiums you are charged.
There is no way of sugar-coating the unpleasant knowledge that your insurance premiums may be likely to increase in 2022 – but an understanding of the market forces behind those increases and an appreciation of the underlying economic trends might help you to come to terms with the reality.