Cut-rate insurance offer for homeowners: Caroline Merrell describes a National & Provincial venture that may herald the society starting its own company

NATIONAL & Provincial Building Society this week launched a home contents and buildings insurance policy that it said undercuts most of its rivals.

The society said it was able to offer cut-rate insurance because it had negotiated discounts with the insurers on its panel.

The move may herald National & Provincial launching its own company following the Government's move to relax the rules governing societies' ownership of general insurance companies.

It would consider a strategic partnership with one of the insurers on its panel. These are Commercial Union, Guardian, Royal and Eagle Star. National & Provincial is also hoping to challenge the rates offered by the direct insurers such as Direct Line.

Over the past few years contents and buildings insurance will have soared for some people.

Huge claims for subsidence on buildings policies in certain areas and a huge increase in burglaries in others have created much greater price differences, both among insurers and between regions.

If you are unlucky enough to live in a high-crime area that has a history of subsidence you may end up paying more than twice as much as someone living close by who does not have the same degree of associated risk.

For instance, Woolwich offers buildings insurance that varies from pounds 1.80 per pounds 1,000 of cover to pounds 4 per pounds 1,000, while Abbey National has 10 bandings of home contents insurance.

The increased rate stratification has led to accusations from the public that homes in some areas - particulary in the inner cities - are uninsurable.

However, the Association of British Insurers denies that the insurance equivalent of 'no-go areas' exist.

The entry by the building societies into the market will increase competition and may reduce the rates.

National & Provincial said there would be some property where it would not offer either buildings or contents insurance. It added that if it was prepared to lend on a property it would be willing to offer insurance.

The new insurance policy will be available to anyone who wants to take it out.

The society said that, using a standard example, it was more expensive in only 13 out of 2,500 postcode areas.

In a smaller comparison sample against Direct Line, it was more expensive using standard examples in only about four out of 28 postcode areas.

A recent survey on household insurance alone, carried out by Datascope Marketing on the direct insurers, found that Guardian Direct was the cheapest provider of household contents insurance. But Datascope said that Guardian might not be the cheapest for all areas.

National & Provincial claims that it can offer these discounts without 'cherry-picking' - selecting the best risks to keep down the premiums. However, it said there were some areas where it would not offer insurance.

The package offered by National & Provincial gives three options aimed to fit in with particular stages of home ownership. First Choice is aimed at young, possibly first-time, buyers who do not need a great deal of cover and where cost may be an issue.

Family Choice cover is designed for those with a young family and Full Choice is for those who want the broadest possible amount of cover.

The other top 10 building societies offer their borrowers buildings and contents insurance from either one insurer or a panel.

They welcome the lifting of the ban on the ownership of general insurers, but are not yet decided on whether to go ahead and launch their own companies.