Average UK home insurance policy rose by 6% between April and June as property insurance pay-outs hit record quarterly high

The average UK home insurance policy rose by 6% between April and June after damage following record claim sums paid out by insurers due to adverse weather in 2023, as the ABI call for the government to bolster climate resilience and flood defence to prevent property damage.

According to data published on 12 August by the Association of British Insurers, the average UK home insurance policy has jumped by almost one-fifth to just under £400, as insurers increase prices following record pay-outs for weather-related claims in 2023.

Annual policies covering buildings and contents hit an average of £396 between May and June, up 6% on the previous quarter. The average buildings only policy was £321, a 7% increase from the previous quarter. For contents-only cover, the average price paid was 4% higher than Q1 2024.

The trade body noted that, whilst the average premium for a combined policy increased 19% compared to the same period in 2023, when adjusted for inflation, the average premium for a combined policy is, in real terms, lower than in 2017.

However, the comparable average claim paid is 45% more expensive than Q2 2017, highlighting that whilst consumers continue to battle with the affordability of vital cover, the insurance sector continues to suffer some of the worst underwriting conditions to date. Inflated rebuild costs, compounded by an increase in extreme weather due to global warming causing substantial damage, has led to increased pay-outs.

Insurers paid out £1.4bn in claims to UK homeowners and businesses during the second quarter of the year to aid them in dealing with unexpected events such as fire and flooding, according to the ABI- a record quarterly total since the body began collecting data in 2017. The average paid on a home insurance claim also increased by 16% on the previous quarter, reaching £5,284.

The latest claims data from the ABI reveals:

• Claims for damage to homes from storms, heavy rain and frozen pipes reached £144 million in Q2 of this year- the fifth consecutive quarter that weather-related claims have been above £100 million.
• Claims for weather damage to businesses totalled £81 million.
• Subsidence payouts for home insurance claims were also up in the second quarter of the year, hitting £60 million – the highest quarterly figure on record and up 12% on the £53 million paid in Q1 2024.

EY figures reveal that insurers paid out £1.22 in claims and expenses for every £1 received in home insurance premiums in 2022. EY expects further losses in 2023, which would mark the fourth consecutive year of property insurers paying out more in claims than they receive in premiums.

Louise Clark, a policy adviser at the ABI, said the claims figures for Q2 highlight the “devastating impact” adverse weather can have and reiterated ABI’s call for a reform of planning law to prevent properties being built on high flood risk areas and climate 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 noted.

In the first half of this year, the UK has experienced heavy rainfall and bad weather. There have been four named storms since the beginning of January, alongside the wettest spring since 1986. Last year, UK insurers paid out a record £573m in weather-related claims- £150m more than in 2022- and the average weather-related pay-out in 2023 was nearly £5,000, compared with a little over £3,000 the year before. Total pay-outs this year are on track to exceed last year’s total of £4.9bn- over £2.7bn of which has already been paid out.

Home insurance is a vital product for millions of consumers, as well as being a condition of mortgage borrowing. Whilst inflation is reportedly easing, the rise in the cost of the average home insurance policy, along with rises in other major cover, such as motor, and general cost of living in recent times, will be concerning for many consumers.

With adverse or extreme weather linked to global warming set to continue, and as insurers battle with harsh underwriting conditions, the issue of affordability and the cost to both the insured and insurer can only be tackled once risk is reduced. For ABI, it is the UK government which must act to bolster the country’s resilience to the imminent threat of extreme weather to ease the cost for all and protect assets.