Tim Evershed examines what can be done about homeowners potentially shunning home insurance
Almost a fifth of UK homeowners are considering cancelling their home insurance, regardless of the possible negative outcomes that would follow such action, according to recent research.
If homeowners do follow through with this action, they would potentially be exposed to risks including expensive repair bills and nullifying their mortgage terms. However, the exponential rise in cost of home cover is causing significant numbers to consider the option.
During 2023, the average home insurance premium rose by 13% to £341, prompting many insureds to look at drastic options for savings, according to comparison site Quotezone’s research.
David Joyson, chief customer officer at property specialists Homeprotect, says: “Having some level of cover is better than having nothing at all – to retain policyholders who are considering cancellation, insurers should start by reviewing the customer’s coverage with them to ensure they're not overinsured.
“This could mean exploring if a lower tier of coverage would suit their needs, or discussing whether they need certain elements such as accidental damage cover on contents. These kinds of changes can make a big difference to the price a customer ultimately pays.
“Insurers can also encourage customers to double-check that all the details on the policy are accurate – like how close the customer lives to water. If it turns out they’re further away than originally thought, that would lower the risk, which could bring the price down too.
“Another option is to increase the voluntary excess as this will reduce the premium without reducing the breadth of the coverage – although consumers should note this will increase what they have to pay in the event of a claim.”
Significant risks
Cancelling home insurance can expose homeowners to significant financial risks as 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 – 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, says: “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 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.”
Rising premiums
A number of factors have put upwards pressure on home insurance premiums recently, according to the British Insurance Brokers’ Association (BIBA).
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 continue to increase, with modern homes tending to have more plumbing to accommodate demand for extra bathrooms, which means that there is more pipework to spring a leak.
Inflation has also impacted the cost of claims, while capacity has been squeezed as some insurers have withdrawn from the personal lines sector, leaving brokers to find alternative markets at short notice.
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 insuring for the correct value/limit, resulting in underinsurance and a reduced payment in the event of a claim.
Homeprotect’s Joyson says: “Home insurance’s value goes way beyond the premium paid. For a relatively modest annual cost – typically a few hundred pounds – policyholders are protecting their entire home and its contents, which could otherwise face total destruction in the event of a fire or similar disaster.”
Insurers can take a number of steps to support customers. That includes providing tips and guides to help people better understand how to look after their homes and avoid needing to make a claim. They can also regularly review products and services, utilise data and customer insights to ensure their products meet the needs of customers and represent fair value.
Graeme Trudgill, BIBA chief executive, says: “An insurance broker can help customers to shop around. 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.”
Tim Evershed is a freelance author
