Householders have been warned to expect a big rise in home insurance premiums after Britain’s two biggest insurers said they would increase rates to cover the impact of this summer’s flooding — predicted to cost £3,3-billion.
Britain’s largest insurer, Norwich Union, said it was planning to introduce 10% increases — typically £35 to £40 a year — in buildings and contents premiums on all renewal notices sent out after August 6.
Within hours, Royal Bank of Scotland, with more than 18 big insurance brands in Britain, said it expected “upward pressure” on premiums, though it declined to say by how much.
Insurance groups warned that those living in the areas affected by flooding would see the largest increases. There was also some scepticism over whether the two firms would be able to make the price rises stick, given the highly competitive nature of the home insurance market.
Norwich Union revealed last week that the most recent floods in Gloucestershire and the south would cost it £165-million. This will be in addition to the £175-million it will pay out for the floods in the north of England during June.
A spokeswoman for Aviva, Norwich Union’s parent company, said premiums had already been under review, following the flooding in Yorkshire and Humberside. “This is not just because of the recent flooding, but also reflects the higher cost of repairing homes generally,” the spokesperson said.
Royal Bank of Scotland, which operates the Direct Line, Churchill and Tesco brands, revealed last week it had taken a £125-million one-off charge in its half-year results from claims relating to the June floods and said it was likely to “book a similar figure” from the July events.
Royal Bank of Scotland chief executive Sir Fred Goodwin, speaking at the publication of the group’s interim results, said: “Clearly the pressure will be upwards, but we will wait and see what comes through. If Norwich Union has put up prices by 10%, then we will see what the market reaction is, but you can’t help but conclude the direction of the pressure would be up rather than down.”
Insurance experts said they expected many other insurers would take their lead from Norwich Union and Royal Bank of Scotland and predicted price rises across the board.
Others were claiming that increased price premiums were by no means certain, particularly given the number of companies that are offering lower prices in an attempt to build customer share.
One such firm, Liverpool Victoria, now branding itself as LV, said it would not be raising premiums.
“Harsh weather incidents, such as the recent flooding, are no longer a freak occurrence and our pricing system already makes allowance for these being more commonplace. We can see no current or emerging reason to increase household insurance premiums significantly in the foreseeable future,” said LV’s head of business, Andrew Beard. — Â