Home insurance payouts surge by 64% – what does it mean for your premium?

The average cost of a home insurance payout rocketed by 64% in the last year, according to new figures from the Association of British Insurers (ABI).

In the 12 months to 30 September 2023, providers paid out an average of £4,096 for a claim compared to £2,491 the previous year. 

Here, Which? explores the reasons behind the huge increase in payouts and the potential impact that might have on the price of premiums.

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Why are payouts soaring?

Several factors have led to an increase in the cost of payouts over the last year, according to the ABI.

The cost of living continues to play a part, with inflationary pressures pushing up the price of repairs in the 12 months to 30 September. Raw materials, energy, fuel and labour have all become more expensive, and shortages of both materials and labour also contribute to higher claims costs.

Extreme weather also triggered more payouts. The average cost of a flood claim has increased by 53% over the same period, from £11,018 to £16,905, while last winter's cold snap led to a spike in the number of burst pipe claims. 

The summer heatwave in 2022 also caused a surge in subsidence claims. ABI figures showed there were 18,000 new subsidence claims during the second half of last year – the equivalent of one new claim every 15 minutes. The average cost of putting a subsidence claim right has seen a 27% jump annually, from £9,042 to £11,515. 

The figures do not include claims for Storms Babet, Ciaran and Debi, which the ABI recently estimated will lead to £560m in payouts for damaged homes, businesses and vehicles.

• Find out more: does home insurance cover flooding?

Claims costs likely to push premiums up

A surge in claims could lead to more expensive premiums, with providers passing on the increased costs to customers.

The ABI’s property insurance premium tracker – a survey that looks at the prices customers paid for cover, rather than quoted – showed a 15% year-on-year increase in the average price paid for a combined home buildings and contents policy. In the third quarter of this year, it rose by £46 to £350, compared with the last three months of 2022.

Over the same period, the average cost of a contents-only policy rose by 10% annually to £126. The average price paid for buildings-only insurance was £273, a 19% increase on the same period last year. This in part reflected increases in the costs of building materials, the ABI said.

• Find out more: best home insurance

Ways to get cheaper cover

The cost of home insurance may be rising, but there are several ways to mitigate any premium price hike:

1. Shop around

This should always be your starting point. But with so much choice, it can be hard to decide which insurer is right for you. 

Price comparison sites that allow you to view multiple quotes at a glance are a good place to start. The main ones for insurance are Compare the Market, Confused.com, GoCompare and MoneySuperMarket.

To get a clearer idea of how different home insurance policies compare, you could also take a look at our guides on the best contents insurance and buildings insurance. We've rated policies from dozens of insurers to help you choose the right cover.

2. Don't automatically renew

Never agree to the auto-renewal clause included in your 12-month home insurance agreement. This means that once your initial one-year contract lapses, you will be automatically enrolled for another year.

Instead, use the best quotes you've gathered to negotiate with your insurer and take your new business elsewhere if it doesn't improve its offer.

3. Renew early

If you leave arranging home insurance until the last minute, generally speaking, insurers are likely to charge you more than if you purchased the cover a few weeks in advance of the cover starting.

Try buying your insurance weeks (rather than days) ahead of the policy going live. 

4. Pay annually

Paying by the month for your cover can make it more manageable within your budget, but can be the most expensive option overall. 

You're effectively borrowing the year's premium to repay in instalments. This typically comes with interest, hiking your annual cost.

5. Cheaper isn't always better

Opting for the very cheapest policy you can find won't necessarily save you money in the long run.

If your policy comes with steep excesses or significant exclusions, you'll feel the pinch when it's time to claim. This means it's vital you check the policy details carefully before buying the cover. 

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