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Why has the cost of home insurance suddenly gone through the roof?

<span>Extreme weather, from wind damage to storms causing floods, has meant more homeowners have had to make a claim.</span><span>Photograph: Joe Giddens/PA</span>
Extreme weather, from wind damage to storms causing floods, has meant more homeowners have had to make a claim.Photograph: Joe Giddens/PA

After seven years living in his flat in Hove, East Sussex, Tony Mollett was used to paying about £100 for his contents insurance. Then, in April, he got a renewal notice for £1,076 – 10 times the cost of his last premium.

Nothing had changed about the level of cover, nor had he made any claims which might help explain why it had soared. His broker, Swinton Insurance, told him it was the best it could offer.

Mollett is not alone. Readers have been telling us about huge price rises, well above inflation, to cover their buildings and contents. And some commentators expect the rises to continue throughout this year.

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One reader told us how his premium with Axa had gone up 70%. After lobbying the company, he succeeded in getting the insurer to reduce it, but it was still 53% higher. Another reader, a 92-year-old man who lives in a London flat, saw his premium with Saga jump from £78 to £251 – a 220% increase.

Meanwhile, Tony Lewis* from Kennington, south London, contacted us to say that his quoted premium had gone up by 45%, to £800 a year, for his two-bed house. He eventually got it down to £730 through a price comparison site – still an increase of about a third.

What’s going on?

Consultancy Pearson Ham says the average home insurance premium now stands at £420. Northern Ireland has seen the largest increase, at 55% in a year, while London is up 44%. Home insurance now eclipses motor insurance in terms of how quickly cover is rising in price.

Consumer Intelligence, which tracks insurance pricing, says the average price quoted went up by almost 42% in the year to April.

Frances Luery from Pearson Ham believes there could be more increases to come before they peak.

So why is it happening? It’s due to a number of factors, according to people in the industry. The well-documented rise in the cost of labour and materials when getting repairs done is a major factor, along with an increase in the number of extreme weather events.

Craig Hosking of Towergate Insurance says there has also been a rise in claims, and more insurers have now left the market.

“Homeowners are increasingly aware of their insurance cover and can be more likely to file claims for smaller damages or losses,” he says. “This rise in smaller claims can add administrative costs, which are often passed on to policyholders.”

He adds: “The departure [of some insurers from the market] has reduced the number of providers, leading to decreased market competition. With fewer insurers offering coverage, homeowners face a more limited selection of policies and potentially higher premiums.”

Chelsea Shakespeare, a manager at brokerage Adrian Flux, says the increases have been higher than predicted and blames the unprecedented series of severe weather events. She expects rises to level out by the end of the year – but more extreme weather could change that.

“A change in behaviour is also playing a part,” she says. “It is more common to claim on insurance than maybe it once was – perhaps, in part, due to the cost of living, with homeowners not having sufficient reserves to avoid having to claim.

“There’s also an increasing trend of younger generations being less savvy with DIY. This might be impacting the ability to fix some minor issues that others may have been able to a long time ago.

“The need for more houses is also forcing many to be built in flood-risk areas and, again, this trend is no doubt impacting difficulties as a result of stormy weather.”

Tackling the bills

Louise Clark at the Association of British Insurers (ABI) says that anyone looking for insurance should shop around.

“Insurers appreciate the strain many household budgets are currently facing. Despite the rising cost of raw building materials and labour, they remain committed to continuing to offer competitively priced home insurance,” she says.

Mollett did just that when faced with his 10-fold premium increase and ended up with a quote for £130 from More Than.

Swinton says his old policy had been withdrawn from the market and that the £1,076 quote was the best it could offer from its panel of insurers. It declined to comment on the vast difference between what it could offer and what Mollett eventually paid.

As well as shopping around and not immediately accepting the renewal price offered, consumers are being advised that there are other ways to reduce their premium.

Hosking says some insurers may allow for policies such as home and car to be combined for a lower price. Higher excesses can also reduce the premium, he says, and more home security may reduce the risk of theft and damage. The ABI, however, says you should check with your insurer to be sure you buy approved equipment.

Undervaluing – a false economy

However much premiums rise, consumers have been warned not to underinsure – for example, where the value of your contents is £40,000, but you only insure it for £20,000. Although it may lower the premium, it could leave you significantly out of pocket if you make a claim.

And even if the amount you claim is less than the total sum insured, you won’t have paid the right premium for the cover needed, so the payment may be reduced. Chelsea Shakespeare at broker Adrian Flux says: “It’s so important that the appropriate level of cover is still being taken out. Trying to save costs now will hit customers in the pocket in the long run. Incorrect valuations will see underpayment, while failing to declare the appropriate information can lead to policies deemed invalid.”

* Name has been changed