Home insurance prices have risen in the first three months of 2016, according to the AA’s British Insurance Premium Index.
Buildings insurance price rises sharply
Buildings insurance premiums now cost an average of £114.52, an increase of 5.4% since the beginning of 2016, and up by 12.3% compared to this time last year.
Since the beginning of 2016 combined policy premiums (buildings and contents cover) have increased by 3.6% to £157.51.
The premiums are calculated on a ‘shoparound’ figure, the average of the five cheapest quotes for each customer.
Why the price hike?
It’s estimated part of the rise over the past 12 months could be due to an increase in Insurance Premium Tax (IPT) that came into effect in November 2015. IPT was previously charged as 6% of premium costs, but the recent rise to 9.5% could explain some of the hike in insurance costs.
Another recent change that may affect prices is the new Flood Re scheme, although this is hoped to be a positive change. The government scheme aims to make home insurance premiums more accessible for people who typically struggle to find affordable cover because of their flood risk.
While buildings insurance premiums have risen, the outlook is better for contents policies, which have reduced in price slightly (1.2%) in the last 12 months.
The index, which also measures changes in car insurance premiums, also found that motor premiums are beginning to level off. Despite car insurance prices being 20.7% higher than this time last year, they have fallen slightly in the first three months of 2016, to an average of £561.24 — a price drop of £2.43.
Michael Lloyd, insurance director at the AA, said: “Home insurance premiums have seen a largely falling trend over the past five years, thanks to lower than expected severe weather claims and competitive pressure.
But that trend was reversed following the IPT increase from 6% to 9.5% in November last year.”
Commenting on Flood Re’s impact on home insurance prices, Lloyd said: “This is funded by the insurance industry which will inevitably have an effect on premiums across the market. Many families will, as a result, find big reductions in their cover which is great news.”
With prices on the rise, it’s more important than ever to shop around for a better deal on buildings and contents insurance. Get started by comparing with uSwitch: