Many factors influence home insurance pricing structures and the premiums policyholders eventually end up paying. One factor is the weather. If in previous years there have been many storms and floods or natural disasters around the world, this will have an adverse impact on reinsurance costs.
Reinsurance is something that insurance companies have to pay. In effect, they are taking out insurance policies to protect themselves against having many high value claim. In other words, insurance companies are offsetting their risks. If the cost of reinsurance increases the insurance firms will increase the premiums that they charge in customers.
The weather in the UK will influence insurance pricing. Very cold winters with lots of snow ice and freezing temperatures across the whole country will have a knock on impact in subsequent years insurance pricing. Most insurance companies will have made some bad weather provision and set money aside in effect to pay weather related claims.
However, if the poor weather is exceptionally severe or widespread then insurance companies may have to look to their reinsurers to assist in paying claims. This then may mean reinsurance premiums are increased the following year the costs of which are passed on to the customer.
In general, there has not been too much bad weather in insurance terms in 2011. For that reason one would think that home insurance premiums should not be on the rise. However, for more than one reason, insurance premiums are set to increase going forward into 2012. Weather is not the only factor that influences insurance prices. The number and value of claims made by policyholders will influence pricing. Customers making claims may lose their no claims discounts which, (like car insurance are offered as discounts when policyholders are claim free), premiums for home insurance are made up of several elements.
One element is the risk factor. In other words, the risk of claims occurring (such as the risk of fire), will be greater in a thatched property than in modern brick built home. Risks such as theft will be greater in an inner city area with higher crime rates. So postcodes are an integral feature of home insurance prices.
Likewise, other factors include the age of proposed customer and the building sum insured. The cost to rebuild a property will also be considered as will the value of the items to replace
Once the risk rate has been calculated by the insurance companies the cost of reinsurance, administrative and marketing costs and insurance premium tax is added as the final part of the equation
Of course, the level of cover that is required will impact the final premium. However, the less cover purchased, the chances of being under insured is a risk in itself taken by a proposed customer. If a proposed customer has had many claims of a certain type, (for instance accidental damage), some insurance companies will actually load a premium or apply terms to the policy to mitigate the risk of further claims occurring.
We hope this article has helped.