Ask Sindie: Don't be left up a creek as home insurance bills reach high water marks

With his premiums up 7 per cent, can a reader afford to stay loyal to his insurer?
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Q: My annual home insurance renewal form has just been sent to me from Norwich Union [NU].

This year, instead of automatically ticking the box as usual, I glanced at the premium and was surprised to see that it had risen by about 7 per cent to nearly £315.

I've had the policy some years and in all this time, I haven't made a single claim. So I don't understand why the premium has gone up so much.

We have other products with NU and I've always liked the company - going elsewhere doesn't really appeal. But I feel like I'm being taken for a ride here and want to get the matter sorted, especially before winter. Should I just accept this hike in my bill?

HT, Plymouth

A: Your grumble is all too common among fellow Independent on Sunday readers. Given that today's home insurance premiums are supposed to be so competitively priced, they ask, how come the bills seem to go up every year?

Unfortunately, like any other product, insurance has its own built-in inflation. The AA's financial services arm records average price movements of general insurance products on its British Insurance Premium Index. Every three months, it measures premium rises in household insurance, both contents and buildings cover.

Latest figures to the end of September show that annual premiums for the contents element of cover rose by 2 per cent during this period to reach an average of £150.99 per household. The buildings element went up by 1 per cent to £205.17.

This latest hike in premiums is largely down to new insurers who, having recently offered the cheapest deals to establish a foothold in the market, are now pushing prices up, says an AA spokesman. But more generally, the price of home insurance is rising for other reasons.

First, stormy weather has wreaked havoc in parts of the country during the past 18 months. Flooding in places such as Helmsley in North Yorkshire, Carlisle and Boscastle in Cornwall has led to a spate of claims, costing insurers dear.

For flood damage, the average insurance claim is between £15,000 and £30,000, according to ABI estimates. In comparison, the average claim for a burglary is around £1,400.

Rising costs for insurers, of course, lead in turn to all customers paying higher prices for protection.

Second, the buildings element of your annual policy usually rises in line with the cost of rebuilding your home brick by brick (the standard measure used to calculate this element of your policy). As the price of labour and raw materials rises, so do premiums.

It's also likely that your higher individual premium relates to factors newly affecting your particular residential area - perhaps a series of burglaries or even a new flood-risk rating.

Everybody's home poses a different risk that changes often, and premiums are weighted to reflect this, as well as the usual inflation across the sector.

NU says that the average annual rise in its customers' premiums is 6 per cent. This is broadly in line with your own extra costs.

Since you've been a loyal customer, you'll have been rewarded with a no-claims discount - even though it doesn't feel like it. (Note that this discount will be capped after five years with the same insurer.)

But such reductions in your bill probably won't save you as much as if you shop around every year for the most competitive deal. It may seem a chore but just half an hour on websites such as insuresupermarket.com should yield results. If you don't have access to the internet, try ringing round insurers listed in the Yellow Pages.

There are other ways to keep your premiums down, too. If you haven't already, install locks on your windows, a burglar alarm and/or a security night light.

And if you're prepared to switch to being an online customer of the insurance company, you can usually get another 10 per cent discount.

A good general rule, however, is never to stick with one insurer for too long: the rewards for loyalty rarely last for ever.

Q: Our daughter has just dropped out of university a few months into her third year, but the real blow has been to discover that she's nearly £12,500 in debt, mainly on credit cards.

Should we pay the debt off for her or, as she's insisting, let her go bankrupt? She says that the latter is the easiest course for everybody.

DN, Southampton

A: Your daughter is underestimating the disadvantages of becoming bankrupt. If you can afford it, wiping out her debts will make her life a lot easier.

Bankruptcy might have lost its stigma - thanks to legislative changes that allow individuals to be discharged in less than a year - but her credit reference will be stained for six years.

At the very least, she'll face great difficulty getting affordable credit, including a mortgage. Nor will she find it easy to get work in the financial services industry.

Frances Walker of the Consumer Credit Counselling Service also points out that student loans aren't written off as part of bankruptcy: they still have to be paid back.

Your daughter has a lot of debt but not so much that it can't be paid back fairly quickly if she gets a job with a decent salary. And if she can live with you for free, the debts may be wiped out even sooner.

If your daughter can avoid bankruptcy, she should - it's absolutely the last option.

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.

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