Average UK home insurance policy jumps to almost £400

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The average UK home insurance policy has jumped by almost one-fifth to just under £400, an all-time high, as insurers increase their prices after paying out a record amount of money in weather-related claims last year.

Annual policies covering buildings and contents hit an average of £396 between May and June, according to data published on Monday by the Association of British Insurers.

The figure marked a 6 per cent rise on the previous three months, and was 19 per cent higher than the same period last year, the trade body said.

The data underscores the growing affordability pressure on consumers as the home insurance sector responds to its worst underwriting conditions for decades. Inflation in insurers’ rebuild costs and other factors have combined with more severe and extreme weather linked to climate change to push up payouts.

Insurers paid out £1.4bn in claims to UK homeowners and businesses between April and June, according to the ABI, a record quarterly total since data collection began in 2017. 

Last year, UK insurers paid out a record £573mn for weather damage after a series of storms.

Louise Clark, a policy adviser at the ABI, said the claims figures for the second quarter pointed to the “devastating impact” that adverse weather can have, and reiterated the industry body’s call for planning changes and resilience measures to reduce risks.

“Urgent government action to tackle surface water flooding and maintain flood investments and maintenance will also help reduce the future impact of flooding,” she added. 

Weather-related claims for households — where insurers paid out for damage from episodes such as storms, heavy rain and frozen pipes — were higher than £100mn for the fifth consecutive quarter, the ABI said. Subsidence payouts also posted a quarterly record.

The £396 figure — which is based on policies paid rather than comparison quotes, like some other industry measures — was an all-time high in nominal terms. But when adjusted for inflation it was still below levels reached in 2017, the ABI said.

The rise in the cost of the average home insurance policy — a crucial financial product for millions that is typically a condition of mortgage borrowing — follows what consumer groups have called a “crisis” in car insurance, another core product. 

Labour promised to tackle the “soaring cost of car insurance” in its general election manifesto, though comparison quotes for motor cover have begun to ease from historically high levels in recent months.

Paul De’Ath, head of market intelligence at consultancy Oxbow Partners, said premiums in home insurance were slower to respond to rising claims compared with motor premiums, partly because some firms focused on fixing the problems in their bigger motor underwriting operations first.

“It is only now that the market is really moving prices up to account for [the rising home insurance claims],” he added.