General Insurance Article - Tax hike to push up home insurance premiums says AA Index

 The typical premium for a combined buildings and contents policy fell once again but by just 0.4%, or 62p, to £152.27 over the three months ending 30 June.

  

 Over 12 months premiums have fallen by 4.8% for buildings, 6.8% for contents and 6.4% for combined policies.
 But the AA is warning that the Chancellor’s unexpected and underhand Insurance Premium Tax rise is likely to fuel bigger premium increases from November.

  

 The Shoparound average is based on the five cheapest quotes for each ‘customer’ in a nationwide basket of risks and based on prices from direct insurers, brokers and price comparison sites.

  

 Janet Connor, managing director of AA Insurance said that after a long period of price drops in an increasingly competitive market, prices appear to be correcting themselves.

  

 “One recent industry report* suggested that home insurers are expected to make their first underwriting loss since the devastating floods of 2007. But this time the reason for the loss is competitive pressure rather than extreme weather.

  

 “I believe that these modest premium increases suggest that the falls are over.

  

 “The stealthy imposition of a 58%increase in insurance premium tax (from 6% to 9.5%) was not expected and it will add around £5to the average home policy. I think insurers will have little choice but to pass it on to customers.

  

 “And in 2016, Flood Re – the new measure to protect home most at risk of flooding – will be launched. This will be funded from the market to the tune of £10 for each policy, putting more upward pressure on premiums.”

  

 Ms Connor points out that the home insurance market is most likely to be affected by extremes of weather. 

  

 “The past couple of years have not seen sufficiently serious flooding or weather damage to have an effect on premiums. In my view, it will take a series of claims in excess of £1bn to trigger a premium spike.

  

 “The Government’s advisory body, the Committee for Climate Change, is warning that the UK can’t expect to get away without future extremes of weather. It’s not just the Government that needs to take greater action to reduce emissions but insurers need to be prepared for the damaging weather events that inevitably will happen.

  

 “Now is not the time to be lulled into complacency by a long period of benign weather.”
 The AA’s British Insurance Premium Index is the longest-running quarterly tracker of home and car insurance premiums, marking its 21st anniversary this quarter.

  

 To download The AA’s British Insurance Premium Index click on the document below