|
Insurance
- the basics
Types of cover
Insurance Policy documents
Glossary
FAQ's
Move on...
|
Cost
How insurance companies price home insurance policies
Insurance companies - like many other companies - try to make out that the pricing of their product is a hugely complicated business. In fact it is pretty simple.
The pricing of buildings and contents insurance policies is a largely automated process. You, the consumer, provide certain pieces of information on your property to the insurance company. They then feed this information into their computer systems. And, bingo, out pops the answer. There is almost no human input involved at all - apart from from the guy who programmed the computer in the first place. Basically the cost of your policy is determined by reference to:
- your postcode
- the insurance company's view of the prevalence (or absence) of crime where you live. Note this is their own assessment not an independent measure
- your own claims history
- the insurance company's assessment of the risk of flooding or subsidence in your area (again this is based on their
- undisclosed
- data)
- the size and type of your property
- the type of security (alarms, locks etc) in your property
The problem with all this is that insurance companies take a very broad brush approach to the cost of insurance cover
- a 'one size fits all' mentality. The crime statistics they use, for instance, are very general. Suppose you live in a safe street in London and haven't been burgled for 20 years.You may find that the cost of your policy is high because you live in a borough which the insurance company deems to be high risk from a crime perspective. The same principle applies to subsidence. And the real problem is that it is almost impossible to have an intelligent conversation with anyone at the insurance company to explain why their underlying data might be wrong. They simply don't want to know.
How to reduce the cost of your home insurance policy
There are various things you can do to reduce the cost of your home insurance. Here are some of them:
increase the excess: the easiest way to reduce the cost of your policy is to increase the amount of the voluntary excess (ie the amount you have to pay when making a claim before the insurance company will make any payment). However, if you go down this route make sure you are realistic about your ability to finance the amount of the excess. You may be forced to pay this amount at a time when there are many other calls on your purse. Suppose you have had a fire. Most people find they are underinsured (either deliberately or without knowing it) when they make a claim. So you may find in this event that you have to cough up not only for the amount of the voluntary excess but also for the shortfall caused by the underinsurance
pay yourself: this may sound like an odd suggestion. However, insurance companies are ruthless in recouping the costs of claims on which they have to pay out. If you make a claim you may well find that the cost of your next year's premium goes up sharply. So if you are thinking about making a small claim on your household insurance consider whether it may be more sensible to pick up the tab yourself in order to avoid steep premium increases in the future
increase security: a number of insurance companies won't insure your home at all unless you comply with their security requirements. This is particularly the case in towns and cities where insurance companies will often insist that you have a properly functioning alarm before they will insure you. However, in some instances there are additional security measures you can adopt which will reduce the cost of your cover. Ask your company whether this might apply in your case
buy your cover online: it is estimated that the cost of a typical household insurance company is 10-15% cheaper if you buy it online
cut down trees: damage caused by the roots of trees is a major source of household insurance claims. If your property is surrounded by large trees, or you have trees particularly close to your property, consider having them taken down. Check, however, that you are allowed to do this (eg by the council) before proceeding
deliberately underinsure: a number of people deliberately underinsure themselves (ie insure the contents of their houses for less than they are worth). If you want to do this make sure you understand precisely what your are doing. First, on no account, underinsure the buildings. If your home burns down the last thing you want is to have any shortfall on the cost of rebuilding (if you have a mortgage, your mortgage provider won't allow you to do this anyway). However, when it comes to contents the position is potentially rather different. A 'deliberate underinsurer' would say to himself: ' If I pay £500 a year over 10 years (ie £5,000) to insure the contents of my home (which are worth £50,000) for £25,000 I am prepared to take the risk that I will not lose more than £10,000 worth of my possessions in that period'. His break even point is for possessions lost is £10,000. If he loses exactly this figure over the ten year period he is cash neutral (the insurance company will only pay out £5,000 for a £10,000 claim since he is 50% underinsured). If he loses more than this figure he has lost out and vice versa.
*Home-Insurancefacts accepts no responsibility for any use of the information provided and shall not be liable for any loss or damage incurred as a result of relying on information contained on this website
Disclaimer & Contact | House Insurance
|
