Household Insurance

Household Insurance – Where it has come from and where it is going

The traditional household insurance which most people have, is based on a wording which dates back to the beginning of the last century and it was only in the 1950’s with the expansion of home ownership that competition between insurers saw extensions added to include breakage of glass and sanitary-ware, underground services, subsidence and the like.

In the late 1970’s Accidental Damage became generally available with “New for Old” claim settlements which was a major break-through, and began the further development of multiple extensions of cover to allow the majority of risks required by any family, to be insured under one policy instead of a variety of contracts with different renewal dates, allowing the reduced administration costs to be passed on in lower premiums.

These developments were very welcome but in effect were only bolted on as an after thought to a policy wording phrased in arcane language and unsuited to later changes in our laws and changing commercial attitudes. Furthermore the premium calculation has become steadily more obscure as insurers stubbornly refused to move away from a system which they understood but which confused their customers.

The result of this stagnation has been that a rating system and policy wording, originally devised before the First World War was tinkered with and modified only of necessity, and has ignored the realities of the approach to modern business life. This is admittedly a simplistic assessment as attempts have been made to devise “plain English” wordings and simplify rating structures, but still leaves much to be desired.

A separate strand has been the steady decline in the profitability of this sector of the market, where from 20 years ago when it was very desirable business, competition has forced the inclusion of additional risks which were not costed, but absorbed into the profit margin, where for example the addition of accidental breakage of sanitary fittings prompted a wave of claims to the extent that the insurers now feel they have re-plumbed the nation. Fierce competition has held down rates to the point where under insurance, inflation, increased crime and weather related losses to name only the most obvious, has now forced many insurers to impose swingeing insurance premium increases. This belated attempt to balance the books with a sledgehammer approach has not surprisingly created anomalies and many first class risks are being seriously over priced.

In the midst of all this turmoil there have been original minds among underwriters prepared to stand back and take a fresh look at what is needed in the 21 Century and it is clear that with increasing affluence a substantial percentage of the public prefer very wide insurance cover which can be adapted to changing life styles and gives full “peace of mind”. While not price driven the policy must give value for money and this type of client appreciates advice on his requirements rather than responding to advertisements or buying “off the page” from a newspaper or magazine.

In response to this, a niche market has developed to provide the discerning home owner, not only with very much wider cover but a very simplified rating structure and with the flexibility to cater for modern life styles.

These policies are typically on a full All Risks basis rather than the more limited traditional contracts, and provide unlimited Worldwide cover on Personal Effects and Valuables and to the astonishment of the traditional underwriter, the Average Clause and all policy Warranties can now be deleted, thus at a stroke, removing the source of so many difficulties in negotiating past claims.

If these terms were allowed across the whole market, insurers would soon be bankrupt and therefore are usually only available through specialist Brokers who are required to carefully match the requirements of the client, where the key is individual assessment of each case. Where these covers are appropriate, this represents the biggest step forward in Household Insurance for a hundred years and can be surprisingly good value in premium cost.

The success of this expanding niche market has resulted in at least one of these specialist insurers being prepared to offer many of these policy terms to a wider group of clients, but still on a selective basis.

There will always be a demand for basic policies providing reasonable cover at minimal cost which will be satisfied by the Direct Sales Market, but their low cost base will not allow the provision of individual advice, and this will remain the province of specialist Brokers who are prepared to listen to the client and tailor his requirement to the best contracts available.

The market will continue to evolve, probably at an ever increasing pace. It is perfectly natural that property owners will see their insurance policy renewal as an unwelcome bill which comes once a year, but don’t wait for a claim to show up the inadequacies of the cover which you have, and which has probably not been revised over many years. Take advice, it’s available for free from any good Broker, who will enjoy discussing your requirements and be delighted if he acquires another client who values his services.