Mixed news on insurance premiums

The cost of insuring homes has fallen over the past year – but there is less good news for motorists, who have seen premiums rise again.

The latest quarterly snapshot of the market by the AA shows that the average quote for a combined buildings and contents home-insurance policy has fallen by nearly £20 over the past 12 months.

That is a fall of 11% in a year, with a drop of 2.4% over the three months to the end of September.

Janet Connor, managing director of AA Insurance, said: “The falls continue a long-term downward trend which suggests that there are home insurance deals to be done for those shopping around for their cover.”

The fall comes despite the severe weather at the start of 2014, including floods that devastated many communities across the country. But that weather had little impact on premiums, despite predictions to the contrary.

“Overall, the weather has been relatively benign for the past couple of years, notwithstanding the February floods, which cost insurers around £450m compared with £3.3bn following the 2007 disaster,” said Ms Connor.

“As a result, insurers’ claims costs have been lower than expected, meaning business has continued to be profitable and has allowed reserves to be grown. This has translated into lower premiums.”

However, the latest AA British Insurance Premium Index also shows that drivers are paying more for their cover.

Car-insurance quotes rose during the third quarter of the year. Although they have fallen by nearly 15% over the past 12 months, there was a rise of 1.2% (or £6) between July and September.

It was only a small increase, but the AA said it could signal a reversal of the recent trend of falling prices.

“Premiums are, on average, now similar to their 2010 level and are no longer economically sustainable.

“I believe that this small upward move in premiums will lead to further modest increases over coming months,” said Ms Connor.

“My hope is that increases will be cautious: it is much better that premiums rise gradually than customers eventually face another series of massive price increases as happened in 2009-10.”

With insurers reporting a rise in the number of so-called “crash-for-cash” claims, it is thought that an average of £90 is added to every policy thanks to this sort of fraud.