What to do about homeowners shunning home insurance?

Recent research published by comparison site Quotezone in August 2024 found that around a fifth of UK homeowners are considering cancelling their home insurance.

These individuals, therefore, run the risk of having to meet expensive repair bills themselves or nullifying their mortgage terms. Despite these consequences, the rising cost of home cover is pushing many Brits to consider cover cancellation as a viable option.

Quotezone noted that during 2023, the average home insurance premium rose by 13% to £341, prompting many insureds to look at drastic options for savings.

Garin Cole, home product manager at Aviva, told Insurance Times: “While cancelling a home buildings insurance policy might seem cost saving in the short term, doing so can have serious financial repercussions for homeowners in the long run – not only exposing them to substantial repair costs if something goes wrong, but potentially putting their homes and finances at risk by invalidating their mortgage agreement terms, as having buildings cover in place is usually a condition of the lender when taking out a mortgage.

“Many people also don’t realise the importance of home contents insurance until they need to make a claim.

“In the event of a major incident – such as a burglary, fire or serious flood – it can be a significant help in repairing or replacing expensive or valuable items like furniture, laptops and jewellery, which would otherwise be incredibly costly to restore or replace, with even the cost of replacing ‘basic’ items quickly adding up.”

Dire consequences

Cancelling home insurance can expose homeowners to significant financial risks because even routine repairs can be surprisingly expensive.

Additionally, homeowners could be held personally liable if someone is injured on their property, which could lead to even larger costs.

Beyond the financial implications, there can be emotional and logistical consequences too – facing the stress of an unexpected event without the safety net of insurance can have a long-lasting impact.

And invalidating a mortgage could have severe consequences.

Andrew Roper, partner at law firm RPC, said: “Most mortgage agreements require homeowners to maintain adequate insurance cover on the property.

“Cancelling home insurance could, in some cases, violate the terms of the mortgage agreement, giving the lender grounds to recall the loan or impose penalties.

“In the event of property damage or destruction, without insurance, homeowners might not have the financial resources to repair the property, placing the lender’s security at risk.

“The loan amount is still payable to the mortgage provider, [so a] failure to repair or default in repayments could lead to legal action from the lender, foreclosure, refinancing difficulties and potential bankruptcy of the homeowner.

“It’s critical for homeowners to understand that maintaining insurance is not just a contractual obligation, but a means of protecting both themselves and their lender from financial harm.”

Trend drivers

A number of factors have put upwards pressure on home insurance premiums recently, according to broking trade body Biba.

For example, there were 12 named storms between October 2023 and early April 2024, with claims from Babet, Ciaran and Debi costing insurers more than £352m.

Escape of water claims, meanwhile, continue to increase due to the tendency of modern homes having more plumbing to accommodate extra bathrooms. This means there is more pipework that can potentially spring a leak.

Inflation has also impacted the cost of claims, as has capacity – this has been squeezed where some insurers have withdrawn from the personal lines sector, leaving brokers to find alternative markets at short notice.

Jo Lloyd, customer and propositions director at Axa UK, noted: “Retaining customers is a huge challenge due to the UK’s current economic environment.

“In order to do so, it is vital that insurers are offering products and services that meet their customers’ needs.

“We know that it is important for customers to see that we value them.

“By building loyal relationships and adapting our product offerings in line with their feedback, we can both retain our current customers and show potential future customers why they should choose us to insure their home and contents.”

Affordability

The current economic environment means there is also an increased risk that people miscalculate the value of their home, contents and possessions. This can lead to customers not sourcing insurance for the correct values, resulting in underinsurance and a reduced payment in the event of a claim.

Lloyd added: “As the price of household items rises due to inflation, it’s important that customers are aware that they should regularly take an inventory of their contents and possessions to make sure their sums insured are accurate – especially as many contents insurance policies provide ‘new for old.’

“The risks associated with having a home that is uninsured are often overlooked.

“By raising awareness of the potential financial impact that can come with any damage to home or contents without cover, we offer customers the opportunity to understand how to best protect what means most to them.”

Insurers can take a number of steps to support their customers.

Primarily, this includes providing tips and guides to help them better understand how to look after their homes and avoid needing to make a claim in the first place.

Insurers can also regularly review their products and services, utilising data and customer insights to ensure policies meet the needs of customers and represent fair value.

Graeme Trudgill, chief executive at Biba, said: “The most important consideration for consumers is to buy an insurance policy that meets their needs and not focus on price alone.

“For example, they may not need accidental damage cover, which will help reduce their premiums, or they may be comfortable accepting a higher excess. Brokers play a valuable role in advising on this.”