It's a chill wind that bodes higher insurance premiums

The cost of household policies is set to rise. By how much depends on the weather, warns Tony Lyons

The days of relatively low premiums for household insurance are coming to an end. According to Touchline Insurance the market bottomed out in June, and insurance companies are all looking for domestic premium increases over the coming winter.

The costs for both building and contents insurance have been reduced over a number of years due to a number of reasons. On the one hand, claims experience has been favourable. Until recently, the insurance companies have seen claims stabilising and even declining in some areas such as subsidence.

At the same time, the rise of direct marketing insurers such as Direct Line, Admiral and others has led to the large composite insurers such as General Accident establishing their own direct sales operations. All this increased competition has contributed to premiums falling to their current levels.

Now this is coming to an end. According to figures recently released by the Association of British Insurers, the trade body representing the main insurance companies, payouts for claims on property insurance jumped significantly in the second quarter of this year.

Its figures showed that theft claims rose 13 per cent compared with the second quarter of 1995, claims for fire damage increased by 30 per cent, there was a rise of 105 per cent in claims for weather-related damage and domestic subsidence claims were up 133 per cent.

To put the figures into context, claims for damage caused by burglaries showed a small increase for the first half of the year while fire damage rose 20 per cent on last year. Weather claims following the severe winter were pounds 419m in the first quarter of 1996 and declined to pounds 113m in the spring.

"After a period of stable or falling claims, the jump in insurance payouts in the second quarter of this year comes as a big disappointment," according to Mark Boleat, director-general of the ABI. "While these figures clearly show the value of insurance, they do add pressure on the industry for rate increases after a long period of largely stable or falling premium levels."

At present, according to Cornhill Insurance, the average premium paid for household insurance is around pounds 170 to pounds 180. This ranges from around pounds 120 in the countryside to pounds 250 or more in large towns and cities.

Over the coming year, the feeling in the insurance industry is that premiums for both buildings and contents could cost householders 10 per cent to 20 per cent more than they do today.

The size of any increase will be very dependent on the claims experienced due to weather conditions this coming winter. Another severe winter with mounting claims for damage caused by storms and frozen pipes will lead to premium increases at the top end of the range. If the weather is relatively mild, then the increases will not be as severe.

Some country dwellers could see a greater proportional rise than those living in the cities, according to the ABI, as theft from houses is rising faster in rural areas, The big difference between crime rates in the town and the countryside has been diminishing as criminals have taken to the motorways to break into country houses.

With their ever more sophisticated means of determining premiums, usually using post codes, many policyholders living in the country could see their properties being assessed in higher rating bands than previously.

Building premiums have benefited from reduced subsidence payouts compared with a couple of years ago. But the fall in claims has coincided with the decline in house sales. Now that the housing market is improving, the insurance industry is expecting an increase in claims. Evidence of subsidence often only comes to light when a building survey is being conducted for a sale of a house.

Another trend spotted by the ABI is that of rising computer thefts from the home as well as from offices. Not all house contents insurance policies cover home computers, especially when they are used for work purposes. But where they are covered, householders could find themselves paying a separate premium just as many now do for bicycles and expensive garden equipment.

There are a number of things a householder can do to reduce the cost of domestic insurance. Inertia has led to many householders paying far too much for their insurance. Instead of remaining with one insurer, it pays to compare the rates offered by a number. This is particularly true when the insurance is purchased as part of a mortgage package. It is often cheaper to take out insurance independently and not just accept the policy offered by the mortgage lender.

A number of companies will now offer discounts to policyholders who take out building and content insurance with them at the same time. A few will give a small no-claims bonus if there has not been a claim for one or two years.

Other discounts are also available. Most insurers will usually give between 5 and 10 per cent discounts to householders who have installed suitable locks on doors and windows, with further discounts available to those who fit burglar alarms. Members of neighbourhood watches often also get reduced premiums.

"Policyholders can do themselves some good by helping to keep down the cost of claims" says Mark Boleat. "There are clear incentives to do this in the form of generous discounts but it is in everyone's interests to take crime and loss prevention seriously. A little extra care can often make all the difference."

Sometimes it is possible to get a cheaper domestic insurance policy in the afternoon from one of the direct marketing insurers. Just as with private car insurance, the sales team has a daily quota to fill. In the late afternoon, if they are short of the requisite number, then the salesperson could quote a lower premium just to make a sale.