Hop on … to a new insurance provider. Photograph: Kay Nietfeld/EPA
The insurance industry works on the boiling frog analogy: if a frog is placed in boiling water it will jump out, but if it is placed in cold water that is gradually heated it will not perceive the danger and will be cooked to death. It may not actually be true about frogs, but it holds water when it comes to home insurance.
Elderly homeowners in particular are slowly cooked by insurers. We were contacted by the daughter of a loyal policyholder with RSA who had had his home insurance with the company for an extraordinary 58 years. She was staggered that her dad was paying £648 a year to insure his two-bed bungalow in Derbyshire. She applied in his name as a new customer, and found that the premium fell to just £162. She estimates that over the years he had paid RSA around £3,500 more than necessary. In 58 years he had made just three claims, for tiny amounts – the last being £20. It's hard not to conclude that the only real burglar he ever had was the insurance company.
Unlike car insurance, where people are used to shopping around – in part because we buy and sell cars more frequently than homes – there is a peculiar stickiness to home insurance. Many people wrongly believe they have to keep the insurance with the same provider they had when they first bought the house or took out the policy. The insurance companies are adept at exploiting this.
There has been little reason to raise home insurance rates in recent years. Burglary has been in decline in Britain for decades, and for people who shop around the AA British Premium Index shows that policies cost 18% less than five years ago. If your home insurance premium has been going up every year, or you're paying much more than £300 for buildings and contents on an average home, you are one of the insurance industry's frogs.
The good news is that the city regulator, the Financial Conduct Authority, this week revealed a clampdown on at least some of these practices. Insurers will be forced to include wording in their renewal letters which will say something along the lines of "Your quote for this year is £200. Last year's premium was £150. This is £50 more than last year. Shop around for the best deal."
But the FCA knows that won't solve the problem of the policyholder who accepts smallish increases every year without question but eventually ends up paying way over the odds. So it has told the industry that loyal customers must be sent a statement after five years saying: "You have been with us for over five years. You may be able to save money if you shop around." The cynics will wonder just how invisible this will be on statements.
The FCA's own research indicates that even if a policyholder is told that their premium has gone up between 0% and 5%, there is no appreciable increase in the number switching. When they are told their premium has gone up by 5%-10%, then the switching rate increases, although not catastrophically from the insurer's point of view – 11%-18% more consumers switch or renegotiate their policy. Knowing this, underwriters will probably continue to shove through 5% increases, even if unwarranted by underlying claims, safe in the knowledge the customer won't move.
But it is difficult to see what more the regulator can do. In the US, elected insurance commissioners have the power to set insurance rates. But when you look at what Americans pay for car insurance, it's shocking. In Michigan, home to America's car industry, the average car insurance premium is $2,551 (£1,696), while the average for the country is $907 (£602). In Britain it's £372. Home insurance in the US averages $978 (£649), while here it is £290.
We may have lots of older residents being ripped off by home insurers, but be thankful that the NHS means no absurdly high US-style medical costs following car accidents – and our household insurance rarely has to pay out for earthquakes, tornadoes and hurricanes.
Source: Don't be a home insurance frog – make the leap to a different policy
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