Abbey comes late to the habit of increasing insurance premiums: Contents cover generally more expensive as crime pushes up the number of claims

ABBEY National's decision to put a 37 per cent increase on the premiums it charges for house contents insurance may have caused heartache to some homeowners, but neither its action nor its motives were new for the insurance industry.

A rising tide of crime over the past few years has led to an escalation in theft claims on insurers. This is one among the many reasons that have plunged the leading companies into losses running into hundreds of millions of pounds in the early 1990s.

Abbey National is among the last companies to take decisive action to tackle the problem. Until it imposed a 10 per cent increase in premiums last December, rates had been unchanged for about two years.

The further rise of 26 per cent announced this week means those of its customers who have yet to renew their contents insurance this year will on average see a total rise of 37 per cent.

High as this figure may seem, customers of Woolwich Building Society have suffered worse increases. Last month it increased its contents rates by 50 per cent, coming on top of 10- 15 per cent rises of last May.

Neither Abbey National nor Woolwich is an insurance company. Like other lenders, both direct their business to panels of insurers - Royal Insurance, Commercial Union and Legal & General in the case of Abbey National, Legal & General, Norwich Union, Eagle Star and Guardian Royal Exchange for Woolwich.

In the mid-1980s, the number of burglaries and the claims cost of domestic theft remained broadly stable. However, after 436,271 burglaries in England and Wales in 1989, numbers rose sharply to 527,634 in 1990 and 622,969 in 1991 (Home Office figures). The cost to insurers rose even more dramatically - from pounds 276.4m in 1989, to pounds 363.9m in 1990, to pounds 590.7m in 1991. Last year's total of pounds 749m was getting on for three times as much as in 1989.

By 1991, the leading insurance companies were all talking of the need to impose premium rises irrespective of the loss of customers. Most have done this through a series of smaller rises than those that the building societies seem to have favoured. Commercial Union, for example, increased rates by 12 per cent in October 1991, by 11 per cent in April 1992 and by 10 per cent in October 1992.

The various increases still leave large differences between the premiums charged by different companies. For a three-bedroom house in London SW2, Abbey National yesterday quoted a premium of pounds 330, Woolwich pounds 588, Commercial Union pounds 389 and Legal & General pounds 238. For a similar house in Newcastle NE3, Abbey National quoted pounds 224, Woolwich pounds 483, Halifax pounds 319, CU pounds 236 and Legal and General pounds 140.

Simple comparisons such as these can be misleading since policy details vary.

While most lenders and insurers profess their reluctance to increase premiums further, the latest teenage crime statistics give little hope that rates have reached a plateau.

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