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Your home insurance price explained

What factors affect the cost of your cover?

Many of us buy home insurance without thinking about what makes up the cost. But if you come to renew and your price has increased, or you get quotes from several providers all at different prices, you may wonder why.

There are many factors that influence the price we give you – some unique to you, others a result of the world around you – together with the likelihood of you needing to make a claim.

We pay claims out of a central pot and, if lots of people claim at once, the pot has to go further – so prices need to go up. But we constantly review the way we calculate the cost of home insurance so we can make sure you get the best price.

Home insurance claims

Claims make up a huge part of the average home insurance cost. Here’s how that breaks down

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What directly affects your home insurance cost?

There are numerous factors we need to consider about you, your home and where you live.

Number of bathrooms

Escape of water is one of the most common reasons people make a claim. More bathrooms mean more pipework, which means a greater chance of something going wrong. It’s also more difficult and costly to trace the origin of the leak.

Where you live

We rate each postcode and address individually, which reflects the price you pay. We look at things like the average claims costs together with future claims we expect to see in your area. More claims in your area means home insurance prices are likely to be higher.

Type of building

We assess each type of home differently, for many reasons. Terraced houses, for example, suffer less subsidence, so may cost less to insure than a semi-detached in an area where there’s a high risk of subsidence – regardless of its size or value.

How secure your home is

Having an alarm fitted doesn’t always equate to a lower price. Sometimes, depending on the crime levels in your area, or if you want to insure your home for a large sum, we may ask you about your alarms and locks, but you might not get any further reductions in price.

Building materials

The way your home was built will probably affect your price. This is mainly down to the potential fire risk – a wooden-framed or thatched-roofed house will cost more to insure.

How busy your home is

Someone’s there during the day
This could put you at a lower risk of theft, but it increases the chance of other claims, such as fire, plumbing problems or accidental loss or damage, which could increase your price.

How many people live there
This has a big impact on prices. More people means more belongings and more potential claims.

Your previous claims

Your claims history in the last 5 years, including accidents, claims, or losses, all affect your price.

What else affects the cost of home insurance

Not everything is under your control – there are plenty of external factors we need to think about, too.

Severe weather

Extended periods of extreme weather cause numerous problems in the UK, most often resulting in burst pipes. But it’s flooding claims that have really risen over the past few decades. As with all insurers, we must regularly review the likelihood of future claims due to flooding. For example, in 2015 when storm Desmond hit the UK, we paid out £4m in storm and flood claims alone. The government has since worked with the entire insurance industry to make sure people who live in flood areas can get affordable home insurance, resulting in an initiative called Flood Re – and we’re very much part of this.

Change in the nature of claims in the market

If we see a change in the types of claims we receive, our prices will also change. In 2017 for example, leaking pipe claims averaged £3,200 each. If this were to go up or down, it’s likely that the cost of home insurance would, too. Escape of water makes up a large part of your premium. There’s been a significant increase recently in these types of claims across all insurers – in the first 9 months of 2017 they were 24% higher than 3 years earlier, according to a report from the Association of British Insurers (ABI). We estimate how much we’re likely to pay in future claims and include this with our prices.

Insurance Premium Tax (IPT) increase

Every price includes a contribution towards administrative costs, such as staff and buildings, as well as Insurance Premium Tax (IPT). Over the last few years, the government has increased IPT several times – before November 2015 it was 6% but this has increased to 12% for all policies from June 2017. This has resulted in a price increase for our customers.

Number of claims

We settle thousands of claims each month. If the number of claims we receive increases, eg because of extreme weather events such as floods, this could increase our costs and lead to higher prices.

Increased repair costs

From TVs to tablets, state-of-the-art kitchens to lighting, belongings are becoming increasingly expensive. Naturally, it’s also becoming more expensive to fix them, which pushes up the cost of providing insurance and, ultimately, the price you pay.

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