Inflation and Insurance: Has Your Premium Been Impacted?
No doubt you will be aware of the rising cost of living, the impact of inflation, and soaring energy bills. But why are inflation and insurance interlinked, and what impact does this have on your insurance premiums?
While the invasion of Ukraine has been a contributing factor in the high cost of building materials, it isn’t the only one. Brexit resulted in supply chain issues, shipping delays and the increased price of raw materials. 1
Labour shortages affected the building trade, while at the same time demand skyrocketed. Then along came the crisis in Ukraine. While the UK didn’t rely as heavily on imported energy from Russia as Europe did, the domino knock-on effect saw oil, gas, and energy costs rise dramatically.
Trade sanctions on Russia resulted in the price of metal and wood becoming volatile with building projects at the mercy of market fluctuations. The cost of a project cost would often change from week to week because of market volatility around the cost of raw materials.2
How Does Inflation and Global Conflict Affect Insurance?
Because of the increased prices of building materials and labour, the rebuild or repair cost of property has become more expensive. Materials including stone, tile, metal, steel, and wood, often used in the reconstruction and renovation of listed or thatched properties have skyrocketed in price, which in turn can affect the price of your insurance premium.
Combine increasingly expensive materials with a shortage of specialist tradespeople often needed to work on heritage homes, and the overall costs rise significantly. Should you need to make an insurance claim, the claim costs might have increased in response to increased rebuild costs. To ensure accurate coverage, the insurance market might offer policies that are more expensive. This is linked to the fact insurers may need to adjust policy limits to reflect these higher replacement costs, leading to higher premiums. If they don’t adjust the level of cover for some properties, you could face the risk of being underinsured.
Adjustment of Policy Terms
To address the connection between inflation and insurance, some policies include inflation protection clauses (also known as index linking). Index linked policies automatically adjust coverage limits based on inflation indexes. This ensures that your policy continues to protect you over time but can result in gradually increasing premiums.
In addition, insurers may periodically reassess the value of the home and adjust premiums accordingly, taking into consideration current inflation rates.
Policyholder’s Response to Inflation
During times of high inflation, policyholders might opt for higher deductibles or reduced coverage to manage their expenses. This behaviour can influence the types of policies the insurance industry offers and their pricing strategies.
Why Can Cutting Costs Around Your Home Insurance be a Potential Risk?
One of the primary reasons for having home insurance is to safeguard against financial loss. Homes are often the largest single investment individuals make in their lifetimes, and any damage or loss can have significant financial repercussions. Home insurance covers various risks, including fire, theft, water damage, and liability claims. Without proper insurance, you, as a homeowner would need to bear the full cost of repairs or rebuilding, which can be financially devastating.
For example, if a fire destroys a home, the cost of rebuilding can run into hundreds of thousands of pounds. Home insurance can provide the necessary funds to rebuild, and covers personal belongings within your home. That’s if you have the correct level of insurance.
Financial Protection For Unforeseen Events
Accidents, damage, and other unforeseen events can occur at any time, often without warning. Effective home insurance can help you recover from such events without crippling financial losses. For instance, if a severe storm causes extensive damage to your home, insurance can cover the cost of repairs, temporary housing, and other associated expenses.
Beyond physical damage, home insurance often includes liability coverage, which is crucial in protecting you from legal and medical expenses if someone is injured on your property. If you employ a gardener for example, and they are injured while working at your property, the right level of insurance can cover you for any compensation costs, should they be presented. This coverage can prevent significant financial strain from lawsuits or medical claims, which can be expensive.
Importance of Tailored Cover
Each home and homeowner has unique needs and risks. Properly insured homeowners work with their insurance agents to tailor policies that fit their specific situations. This customization can include additional coverage for high-value items and extended replacement cost coverage.
How Can We Help You if Your Premium Has Increased?
Premiums are skyrocketing because of the increase in materials outside of the UK. It is increasingly difficult to get materials shipped, after which they are often subject to delays and diversions which can hike up the cost of materials and labour. If there are no other contributing factors like claims, this could be the reason why you may have seen your listed or thatched home insurance premiums increase. So, how can we assist with your premium and what measures can you put in place that could potentially lower your premium?
Increase the Deductible
One of the simplest ways to reduce home insurance premiums is by increasing the excess – the amount you pay from your own funds before the insurance coverage kicks in. A higher excess could lead to lower premiums because the insurance company assumes less risk. As a homeowner, you could assess your financial situation to determine the highest excess you can comfortably afford in the event of a claim.
Improve Home Security
Investing in home security measures could help lower insurance premiums. Installing alarm systems, security cameras, smoke detectors, and locks that comply with your insurer’s requirements can reduce the risk of theft and damage. Some insurance companies offer discounts for homes equipped with advanced security systems, especially those monitored by professional security companies.
Perform Regular Home Maintenance
Well-maintained homes are less likely to suffer damage that results in insurance claims. Regular maintenance, such as inspecting and repairing your roof, cleaning gutters, and addressing plumbing issues promptly, can help prevent larger problems that could lead to significant claims.
Avoid Small Claims
Filing multiple small claims can lead to higher premiums. Insurance companies may view frequent claims as a sign of higher risk, leading to increased rates. To counteract making smaller claims, you could consider paying for minor repairs to keep your claims history as a ‘clean record’.
Review Coverage Annually
Your insurance needs can change over time. Regularly reviewing your policy to ensure it matches the current value of the home and its contents can prevent overinsuring or underinsuring. Adjusting coverage levels to accurately reflect your home’s current rebuild value and eliminating any unnecessary coverage can lead to premium savings. Taking time to discuss your options with our insurance specialists could result in you making savings in ways you didn’t anticipate.
Premium Credit and Vulnerable Clients
In many instances we can arrange for you to pay your insurance premium through direct debit. Payments can be spread over a 10-month period, usually at 12% interest rate. We can also take into account the vulnerability of a client: whether they have a health or legal issue.
In this instance, we can spread any missed payments over two to three months without the interest. If you are struggling around your insurance, talk to our team who will do their best to help you find a solution.
If you are concerned about the cost of insuring your thatched or listed home or have any questions about your policy, don’t hesitate to get in touch. Alternatively, if you would like to discuss a new or existing quote, please contact us.