Many find that year on year their insurance premium is going up even if no claim has been made.
Whether it's home insurance or car insurance, every year policies seem to go up and one of the top questions we're asked is 'why does my insurance premium go up?'. It can be very frustrating to see your premiums go up regardless of whether or not you have claimed on your policy, so what makes the premiums go up? There are a lot of influencing factors that affect insurance premiums and not all of them are determined by the individual.
External influencing factors
Where you live in the UK has quite a big influence on the cost of your premium. If you live in an area that is at higher risk of being burgled, you will see this reflected in your insurance cost. Insurance companies use analytics to predict the likelihood of this happening and if they predict your home is in an area where this is more likely to happen, this will affect your premiums.
The weather is starting to affect home insurance premiums more than ever before. As weather patterns are changing, we're seeing more damage caused by flooding, storms, and cold snaps. This increases the likelihood that an insurer will need to pay out on a policy and lead them to increase their rates to cover the cost of this.
Other people unfortunately do affect your premium. Insurance fraud costs policyholders up to £50 a year and alongside this, the pandemic has also led to a rise in claims. With more people working from home, more people have claimed accidental damages which have meant higher costs for insurers.
Internal influencing factors
Home renovations can increase the rebuild cost of your home which may mean you need more coverage than your previous policy provided you with. You must get any expansions valued by a surveyor and provide your insurers with an accurate cost to rebuild your property. It's worth noting that this is not what your property is valued at by estate agents, the rebuild value means exactly that - what it would cost to build your home again from scratch.
Who you live with and how often they are at home can affect your premiums as well. Statistically, young families are more likely to claim as there is a higher risk of accidental damage occurring.
Your claims history will affect the cost of your premium. Often insurers reward customers who remain claim-free with savings on their policies so when consumers do have to make claim, they will lose this saving. If a consumer has also made a series of claims on one policy this may be seen as a concern to insurers and they may add a surcharge to a policy to offset the cost of multiple claims.
The price index. As the cost of living rises, so does the cost of replacing things. Every year new and increasingly expensive technologies are released which means insurance policies need to adjust to match this rising cost. The Insurance Premiums Tax is a tax to regulatory bodies that also affect the cost of premiums, between 2015 and 2017 this doubled from 6% to 12%. This is reflected in consumers insurance premiums.
What can you do to reduce your premium?
It can be frustrating to see your premium increase when you haven't claimed on your policy but there are several things you can do to keep the costs down:
- Shop around. Allowing policies to auto-renew can mean you end up paying more than if you were to look around. A lot of insurers offer introductory prices for new customers which can reduce the costs quite a lot. Alternatively, if you find you are too busy to shop around for your policies, you can use an insurance broker like The CGA to look for the best policies for you.
- Increase your excess. If you opt to pay a higher excess on any claims this will usually result in a better discount from your insurer. You should set this to what you can afford to pay in the event of a claim.
- Paying annually often results in a discount in the cost of your premium. Paying monthly may be convenient but it's viewed as a loan and so insurers will add interest to payments, making it more expensive.