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Should I follow Martin Lewis’ advice as a high-value insurance customer?
Martin Lewis’ latest newsletter comments that home insurance premiums have risen by 26% compared to last year. Sadly, he is right; we’ve known about this for some time. This increase applies entirely to the household insurance market, including non-standard insurance (flooding, thatch, subsidence, underpinning, etc.) and general and high-value home insurance. However, how you respond to the increase is different if you’re a high-value home customer.
We must be careful not to tar the high-value home insurance market with the generic household market response brush. This 3-minute read addresses why premiums have increased, including why and how you should act differently as a high-value home insurance customer.
Five reasons why premiums have increased
– 1 –
Low-cost products have fallen away.
Over the past two years, many products have evaporated off the shelf in the high-value insurance world. Additionally, many managing general agents [MGA] have had to change capacity because they’re paying out as much, if not more, in claims than they’re taking in premiums.
Many reasons contribute to a product ceasing and capacity changing. Still, often, it’s twofold: (1) new products enter the high-value market with low premiums, and they secure lots of new business in the hope of being the ‘special one’ who can underwrite around an inevitable claim storm. Sadly, this rarely happens, and an MGA needs to find another capacity. And (2) large insurers purchase emerging competitors and assimilate them.
The outcome? Reduced options for the customer means less competition, leading to, yep, correct again, higher premiums.
Rest in peace Home & Legacy, Azur Private Clients (now Aviva Private Clients), Midas Royal, Covea Private Client Motor, Aviva Distinct Motor (in run-off) and multiple other capacities that have exited the high-value market in the past 12-18 months.
– 2 –
Shortages create delay, and delay also increases a claim value.
When suppliers delay, workers cannot repair your property as expediently as everyone wants. Since a high-value home policy includes up to 5 years of alternative accommodation cover (consider this cover a like-for-like courtesy house until your house is ready to be habitable again), delayed repairs mean longer stays in a courtesy house.
As currently advertised on Sotheby’s Realty London, a 5-bed rental could set an insurer back from £1,856 per up to £15,000 per week. If the supplier is waiting on specialist roof Delabole Slate Quarry tiles from the depths of Cornwall, a month’s delay could be an additional £60,000 expense for the insurer, just for the alternative accommodation aspect alone. The longer it takes to repair your home, the more significant the total cost of the claim is, and an accumulation of increased cost means, yep, you got it, higher premiums.
– 3 –
The price of materials has risen, increasing a claim value.
Despite the cost of building materials marginally falling over the past couple of months, they have grown considerably over the past four years. According to the Office for National Statistics 2022 report, ‘the cost of construction materials in the UK was over 46% higher in July 2022 than pre-pandemic in January 2020’.
As reported by Checkatrade, prices for timber, cement, insulation, plywood and roof tiles have increased considerably due to shortages across the UK.
For example, repairing your home following an escape of water claim to your bathroom, affecting the room below, will likely cost 46% more today than in 2020. A £20,000 material purchase cost in 2020 will probably be closer to £30,000 in 2023. Over time, higher costs mean increased premiums for the customer
– 4 –
Fair pricing governance means goodbye to new business discounts.
If you have six hours to burn, Google ‘what is fair pricing governance’ and read the details. If not, here’s a quick point that directly affects your premium.
Whilst these FCA guidelines are put in place to protect the customer (which they do, and we support them), changes to policy often carry unintended consequences. With fair pricing, one such effect is saying goodbye to new business discounts, which previously incentivised customers by rewarding a thrifty shopping mentality.
Now, each insurer must issue the same premium at new business as a renewal, which means no further new business discounts pointing to higher household insurance premiums.
– 5 –
Salary costs are rising fast.
Statista.com have provided a sobering chart outlining the sharp salary increase over the previous three years. Keeping the best staff in every department of your business means increasing the bottom salary line year after year for the last three years.
A high-value customer should expect increased attention and quality of a high-value home insurance policy wording, underwriting approach, broker advice service and claims experience. With this in mind, according to Statista, insurance premiums should be increased by 7.5% to cover the salary costs alone.
Of course, many other factors are raising home insurance premiums. For instance, we have not touched on the rising risk of theft or loss or increases in fraudulent claims. However, the five reasons above provide the context for understanding and empathy.
Three ways a high-value home insurance customer could behave differently
Whilst Martin Lewis’ principles are welcome for the general household market, the same rules of just shopping around only apply to a high-value home insurance customer if they’re insured with a direct market (like NFU Bespoke Home or Direct Line Premier Select). If you are, then it’s time you choose a high-value home insurance broker because a direct insurer will only have one option for you.
However, if you’re already with a high-value home broker, wait to shop around yourself; get them to first shop around for you and provide a complete list of markets and outcomes.
We suggest you behave differently as a high-value home insurance customer in the following three ways:
ONE
Follow our five ways to keep your high-value home insurance costs down.
TWO
Ask your existing broker to provide a list of all markets they’ve approached with evidence of outcomes.
THREE
If you’re frustrated with your current broker, find a new broker you can trust and get them to shop around for you.
Please, only call other brokers if you have a complete list of the markets the current broker has been to with evidence of outcomes.
Matthew Ashton, Stanhope Insurance
If you do not trust that your current broker is rolling up their sleeves at renewal to find you the best possible solution, that’s a different matter, and you’re best to find an alternative broker you can trust. See our eight tips for choosing a high-value home insurance broker.
When you get multiple brokers shopping around for you, it can be detrimental because brokers often go to the same markets, and any nuance to sums insured or risk information provided could cause underwriting uncertainty, leading to less favourable outcomes. Or, unless you have the list of previously approached markets to hand, the new broker could waste hours of your and their time by going to the same markets your existing broker has already approached.
Our top tip is to choose one broker you trust and get them to work for you. Let’s face it: you are cash-rich but probably time-poor. After all, it’s in the broker’s interest to secure your business, as the insurer will reward them with a commission payment.