Household insurance - are customers getting the best deal?

Melanie Westcott contributed to the writing of this post

On 5 November the Association of British Insurers (ABI) launched its average household insurance premium tracker. This tracker complements the average motor insurance premium tracker released by the ABI in January 2014 and shows what consumers are actually paying on average for their household insurance.

The most recent Q2 2015 results show that the average combined buildings and contents policy premium has fallen since last year.

We’ll look at the tracker results in detail as well as review the 'best' insurers in the market according to Which? and outline  what people can do to try and lower the cost of one of the their home insurance.

ABI Tracker trends

The ABI Tracker shows what customers are actually paying for their household buildings, contents and combined insurance, and how this changes each quarter. It is based on data from ABI members and covers 90% of the home insurance market.

The Tracker provides greater transparency so that consumers have sufficient and clear information about one of the most important purchases they will make.

During Q2 2015, the Tracker shows that:

  • the average annual premium paid for a combined buildings and contents policy was £288, or £5.54 a week - this is the same as the previous quarter and down 2% compared with the same quarter last year. Combined policies account for nearly three quarters of household premiums
  • the average annual premium paid for a buildings only policy was £238 or £4.58 a week - this is a 5.3% increase compared with the first quarter of 2015, but a 1.2% decrease from the same quarter a year ago
  • for contents only insurance, the average annual premium paid was £125, or £2.40 a week - this is up 4.2% on the first quarter of this year but is down 5.3% compared to a year ago

To view these results in full go to ABI Household Insurance Premium Tracker

"Although customers benefit from a competitive home insurance market in order to lower the price of protection for their homes this is will be partly offset from an increase in insurance premium tax"

Comparison to AA Shoparound

The June 2015 AA Shoparound[1] quote of a standalone buildings or contents policy has risen for the first time since 2012. Although using different premiums examples to those from the ABI tracker (£108.15 for buildings, £61.18 for contents and £152.27 for a combined policy), the message is the same for the contents and buildings policies – an increase since the previous quarter. There was a slight difference between the AA Shoparound index and ABI tracker combined buildings and contents premiums – the latter showed no change whereas the former showed a quarterly reduction of 0.4%.     

Both the ABI tracker and AA Shoparound index showed that the premiums have fallen for all three policies compared to a year ago to varying degrees.

The ABI tracker shows the average premium for a combined policy is £75 cheaper than buying buildings and contents cover separately (the AA equivalent is £17 cheaper). The differences could be due to the AA index looking at the cheapest premiums on the market whereas the ABI results cover 90% of the home insurance market so there may be more variability in the premiums charged.

Potential arbitrage?

From these results it also looks as though buying combined buildings and home contents insurance works out cheaper than purchasing the two separately!  A factor contributing to the differences could be the additional administrative costs for underwriting two policies rather than one.

Key takeaways

• The increase in IPT is likely to fuel bigger premium increases from the end of 2015
• 'Flood Re' may increase premiums from April 2016
• It’s cheaper to buy combined buildings and home contents cover than purchasing the two separately

What the future holds?

The Government has confirmed the state-backed 'Flood Re' scheme, which guarantees affordable insurance for households in flood-prone areas, will 'go live' in April 2016. This will be funded from the market putting more upward pressure on premiums.

Although customers benefit from a competitive home insurance market in order to lower the price of protection for their homes this will be partly offset from an increase in insurance premium tax.

Currently, people buying general insurance products such as home insurance are paying a levy of 5% as part of the overall price but there are suggestions that it could rise to as much as 17.5% to bring it in line with Insurance Premium Tax (IPT) on travel insurance and electrical and car warranties. The IPT increases may leave insurers with little choice but to pass it on to customers from November.

What are consumers doing to keep down the cost of their home insurance?  

Which? advises customers to shop around and also haggle with their current provider to get a better deal so if insurers want to retain customers they may want to at least match the premium being offered. Cashback websites (such as TopCashback and Quido) are available to customers. This is a further incentive to get money back on their purchase.

Also, buying buildings and home contents insurance together from the same provider can often secure a discount as can paying the premium in one go rather than spreading the annual cost over 12 months. Insurers could consider offering combined policies to customers buying separate cover as the customer makes a saving and the insurer gets more business!

Finally, adding extra security such as locks on doors and windows, smoke detectors and burglar alarms can help reduce the cost of premiums as the increased security should result in fewer claims for insurers and the benefit can be passed onto the customer in lower premiums.

[1] The AA Shoparound index is an average of the five cheapest premiums, quoted from the broker, the direct market and price comparison sites, for each risk in a nationwide basket of risks representative of the British insurance buying public. The quarterly tracker of home and car insurance premiums has been running for 21 years