Insurers bulk up reserves to pay weather claims

The AA’s latest benchmark British Insurance Premium Index shows that the cost of home insurance rose sharply over the last three months of 2010.

This is a result of insurers become increasingly concerned with growing numbers of weather-related claims.

The shoparound average premium for buildings cover is now a record £143, an increase of 7.7% over the quarter and 10.2% over the year.

The cost of contents cover, however, fell slightly (by 0.8%) to £72. Over the year the average Shoparound premium rose by 8.3%.

The cost of a combined buildings and contents policy rose by 3% (4.9% over the year) to £200.

Simon Douglas, director of AA Insurance, says that insurers are beginning to build reserves to meet future weather-related claims.

“Flood claims are both increasing in number and unpredictability. In just the past quarter we have seen severe weather in Cornwall, Hampshire, Sussex, the Isle of Wight and elsewhere, in places where there is no flooding history

“In addition, the early winter brought a huge increase of snow and ice related claims for the second year running – in fact the Association of British Insurers estimates that the industry is paying out £7m per day for burst pipe claims.

“There does seem to be a pattern of weather extremes developing.”

In the Autumn spending review, investment in flood defences was effectively reduced and the Government is facing pressure to explain how it will continue to protect flood-prone properties.

In 2013, an agreement between the Government and the insurance industry, known as the ‘statement of principles’ and designed to ensure that properties in such areas can continue to obtain insurance cover, comes to an end.

“The industry, including the AA, is discussing with the Government ways to meet the future insurance needs of people affected by flooding," added Douglas.

"It is vital that a solution is found before the risk becomes a crisis: otherwise, I fear there will be thousands of properties up and down the country that will become uninsurable and thus unmortgageable."