If your policy is about to renew, you may wonder why it is costing more to insure your property. Is it that the insurers are being greedy or something else?
At UKinsuranceNET, we pride ourselves on offering what we believe are competitively priced, comprehensive property insurance policies. There are some things, sadly, that are out of our control which affects the price of your cover, industry wide.
Here we look at why the cost of your property insurance may be costing more ….
Repairs, reinstatement, and rebuilding costs are soaring
At the heart of your property insurance is the reassurance that you will be covered against any loss or damage that requires repairs, reinstatement, or rebuilding of your property. That is the key to your building insurance after all.
The simple fact is that the cost of any of those repairs or reinstatement or rebuilding works is going up:
- the cost of the materials involved are subject to the same inflationary forces as any other goods and services in the market.;
- there is a shortage of skilled labourers, fuelled by Brexit and Covid-19 – meaning labour costs have increased.
If the cost of repairs and rebuilding increase, then so too, must the cost of the premiums that are collected by your insurer to pay for those building works.
The rate of inflation including housing costs for the year to the end of December, according to the Office for National Statistics (ONS), was 9.2%.
Recent figures published by the Office for Budget Responsibility (OBR) forecast the rate of (RPI) inflation for 2023 (as a whole) to be an expected 10.7%.
This combination of high rates of inflation and steadily rising interest rates meant that the cost of labour is also likely to continue to rise during 2023.
It is not only the escalating prices of the materials needed to repair or rebuild your property after loss or damage that lies behind the recent increase in insurance premiums, but also the cost of the labour required for those building projects.
Increase in claims means the insurers need a bigger claims reserve
The collective amount that any insurer needs by way of the premiums charged must cover the amount they may be obliged to pay out in the settlement of claims. This is typically referred to as the insurer’s claims reserve.
The value and number of claims determine the size of the necessary claims reserve, and the size of the claims reserve determines the price of the premiums that must be charged.
We have seen how inflation, higher interest rates, and the pressure for increased labour costs will affect the premiums you are charged.
How does the number of claims made affect me when I haven’t claimed? The number is increasing. So that increases the claims reserve that must be maintained by insurers – and that, in turn, means that more funds must be raised by way of higher premiums.
As you might expect, the most damage is caused to property during winter storms.
In a press release on the 12th of December 2022, consultants and accountants PwC predicted that widespread flooding in the UK this winter could cost the insurance industry £1 billion.
Plus, worsening rates of climate change threaten to bring in still further natural disasters – all of which will prove an ultimate and largely incalculable series of claims.
The changing weather patterns make it ever more difficult for insurers to calculate future risks – which nonetheless need to be covered by the claims reserve and the prices charged to the you, the consumer, by way of insurance premiums.
A change in design and construction of homes
There is a further series of changes which potentially increase the risks inherent in property insurance – whether the dwelling is ultimately used by owner-occupiers or by tenants.
Those changes stem from the ways the design and construction of modern homes – including those that have been modified or adapted for modern use – have increased rather than lessened the risks of fire, flooding, or storm damage.
The trend towards an open-plan design for living areas, for example, may make it more difficult to contain any fires that break out – this may result in a higher claim amount being submitted.
Understanding why your property insurance premiums may have increased may not take the sting out of having to pay the added cost but, at least, you will know what factors have contributed to the insurer’s calculations.