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Rising Home Insurance Costs for UK Homeowners

Cash strapped homeowners have seen the cost of their home insurance policies rise by an average of 7% in 2010, according to a new survey by the AA. The survey found that the market average home insurance policy premium was £225. The main cause of the price rise has been blamed on the U.K.’s severe weather conditions during 2010 including severe flooding and one of the coldest winters on record.

The survey analysed hundreds of different property types in order to get comparative quotes. The insurance industry is generally in the process of raising home contents insurance UK rates following a period of paying out billions of pounds in insurance claims caused by bad weather in the United Kingdom. There is also a sense of nervousness in the insurance industry regarding future volatility of weather-related home insurance claims, as a result of changes in global climate patterns.

Flood claims are both increasing in number and unpredictability, said Simon Douglas, director of AA Insurance. In just the past quarter we have seen severe weather in Cornwall, Hampshire, Sussex, the Isle of Wight and elsewhere, in places where there is no flooding history. In addition, the early winter brought a huge increase of snow and ice-related claims for the second year running in fact the Association of British Insurers estimates that the industry is paying out £7m per day for burst-pipe claims.

Last week, RSA issued a profits warning due to the additional £110 million of cold weather home insurance claims experienced by More Than this winter. It announced that from November 2010 it had had to cope with over 8,000 burst water pipe insurance claims. The average cost of each insurance claim was £6,700 per claim. This huge increase was reflected in the numbers of policyholders ringing the call centre which was 90% above average. The winter cold snap is just one example of a trend of bad weather which has affected the insurance industry in the last few years. Since 2004 buildings insurance has nearly doubled while contents insurance has fallen by 5%. This is the result of £4.5billion worth of flood related insurance claims suffered by the UK home insurance industry in the last 10 years. Despite this increase a recent survey by Assetsure found that many homeowners were apathetic towards the risks of flooding and it’s potential cost of the damage to their own home.

Meanwhile the ongoing discussions between the insurance industry and the government regarding subsidising flood defences is ongoing. There is huge pressure on the coalition to cut every aspect of public spending. In past years the ‘statement of principles’ agreement was set up between insurance lobbies and the government. It aimed to make sure that any home owner (of the 2.5 million properties situated in UK flood zone map) can continue to obtain insurance to protect their buildings and contents. This agreement will come to an end in 2013 and negotiations continue to review what happens after that date.

Many home insurance companies are reluctant to provide insurance cover in areas that have previously flooded and have the potential for huge future claims and losses.’The industry, including the AA, is discussing with the Government ways to meet the future insurance needs of people affected by flooding. In is vital that a solution is found before the risk becomes a crisis: otherwise, I fear there will be thousands of properties up and down the country that will become uninsurable and thus unmortgageable,” Mr Douglas says.

In light of the increased volatility in weather patterns Insurers have recently warned homeowners to check whether or not they have enough insurance cover to protect themselves in the event of a flood or other major disaster.

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