Home insurance policy premiums increase due to IPT and flooding

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As expected, the much-discussed Insurance Premium Tax rate increase has started to make its presence felt in another area of personal insurance. This time it’s the home insurance sector which is feeling the brunt of the long-promised IPT hikes, which the Chancellor gave the insurance industry fair warning about in last summer’s budget.

Yet for all that nobody quite realised just how quickly the effects of the 3.5% rise would bite. However it’s not solely the IPT rate revisions which are being cited as to blame for the sudden reversal of fortunes for the home insurance sector, after it witnessed its first upward shift since 2011.

One of the most respected (and accurate) barometers of industry changes, the AA British Insurance Premium Index, has reported that this (as yet relatively small) rate rise was first observed in the last quarter of 2015, and comes after three successive years where home insurance premiums have been tumbling.

The figurative heads up is derived from the pooling of average premium quotes, compiled to cover the entire household insurance sector, including buildings, home contents and combined plans and on account of the recent timeframe does of course encapsulate the November-effective IPT amendments into all calculations.

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IPT rise and winter flooding to blame for home insurance premium price hikes, say market experts

From a monetary perspective the go-to industry index has confirmed that an annual buildings policy has increased by £2 and as of the fourth quarter of 2015 stood at £108.59 according to data published recently, although conversely the AA admitted that this was still representatively 1.4% less than 12 months previously.

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Running the rule over home contents plans and premiums had risen by 41p during said quarter, and yet broadly-speaking down 2.4% over the course of the year, whilst combined policies went up £4 (to £153.24), despite previously dropping some 4.2% from year end to year end.

Pinpointing the introduction of the revised IPT rate as key to the quarter-on-quarter upping in premium

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quotes, the AA was of the firm opinion that without its impact the figures would have fallen once again on balance.

Removing the IPT change from the equation and naturally another strong factor which has influenced the altering of the hitherto trend is the role that recent flooding played in the home insurance market, while also taking on board the underlying fact that in coming weeks (and effectively taking us well into the first quarter of 2016) more seasonally-adjusted inclement weather is set to be integral to how household insurance premium market continues to pan out.

There’s no doubt that both the IPT rate hike and unpredictable weather will have incremental impact going forward into 2016 to potentially undo a lot of the good work made by perpetually falling home insurance quotes in the past 4 years (and prior to the last quarter of 2015 which has heralded the change), however there’s still a cautious optimism amongst some of the leading lights in the sector.

Director of AA’s home insurance division, Mike Lloyd told Insurance Age that;

Home insurance premiums have been falling fairly steadily for four years. The trend appears to be continuing, albeit at a slower rate, if you take out the effect of the IPT increase. Nevertheless, the recent flood claims appear to have slowed the fall in premiums and could lead to modest premium increases over the rest of 2016.

Describing how he believed that benign weather conditions over the past few years had significantly contributed to the reduced premiums, Lloyd was still resigned to the recent downward trend in premium quotes being unfortunately reversed hereonin when he concluded;

Whatever the rest of the winter throws at us, the insurance industry is well prepared to support those whose homes are devastated. But there is little room to absorb significant claims costs which will ultimately, reverse the downward trend.