Home insurance premiums are rising despite firms being told to have empathy

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Insurance companies have been requested to be tolerant during the COVID19 pandemic. But are they doing so?

Insurance companies learned some lessons after SARS, and most business and travel policies now have exclusions for pandemics. But, for home insurance policies, not much has changed for COVID-19. Risk levels remain similar, and there are no big changes in what’s expected to be paid out.

In early May, the Financial Conduct Authority released a paper, guiding insurance and finance firms through the pandemic.  It recognises that many customers will be experiencing temporary financial difficulties specifically related to CV19, and that these situations should be given a certain kind of treatment. With record unemployment levels appearing almost overnight, many people were financially unprepared for a reduction of income.

What does the FCA say?

It has issued a fairly straightforward list of guidelines.

When a customer has financial difficulties arising from the pandemic, the insurance company must deal with the situation fairly, with the goal of ensuring customers continue to have uninterrupted insurance, and to minimise the impact of this financial stress.

There are two main situations that indicate someone is under financial distress:

  • If a customer contacts them and states they are having problems paying their premiums or suggests they want to reduce cover for some time.
  • Where there has been a missed payment where previously there have been no problems.

In these situations, the FCA outlines action the insurer should take.

  • Re-assessment of their risk. For instance, their situation may have changed due to Coronavirus. The customer may have stopped using their car, and this may result in lower premiums.
  • Giving consideration to other products which the insurer could offer, or other changes in cover that could result in lower premiums.
  • Deferring payments when possible. If the customer truly cannot pay, a payment plan may be advised. If there’s no choice but to cancel the plan, insurance companies should not charge cancellation fees or penalties.
  • An insurance company should waive any associated fees with changes.

The document also states that insurers are not expected to raise their premiums due to a reassessment.

Despite the FCA guidance, some insurers are increasing premiums

There are an increasing number of reports of insurers raising premiums. This appears to be a precautionary step, with expectations that claims will rise over the next few months as people damage items while constantly being at home.

There is also expected to be a drop in business in general for them over the next 12-24 months. Due to a loss of employment, many people will be scaling back their insurance. There will also be increased pay-outs for life insurance, health insurance, and income protection insurance. However, this should not result in any change in your home, contents or car insurance.

Some insurers have been proactive in making positive changes

There has been a huge drop in car accidents and claims, as people simply are not leaving their homes. As a result, auto insurers are experiencing higher profits than expected. Some companies are offering these ‘winnings’ back to their customers, in the form of lower premiums, discounts and credits, from 15 to 25%.

Many insurers have proactively offered customers the option to defer premium payments for up to two months, which at least provides some breathing room while people reassess their situations.

There have also been reports that major insurers are suspending cancellations for non-payment of premiums and waiving late fees.

What’s the official advice?

If your insurer has increased your premiums, you have two options.

  • Find a new insurer. This may come with penalties or charges, but depending on the price gouging, it may still save you money.
  • Complain to industry bodies about their behaviour. If enough people do this, the regulatory agencies will have to act to ensure customers are treated fairly.

Moving forward, the insurance industry is finding significant increases in website traffic and purchase of policies online. This will continue far beyond 2020, and you can expect more insurance companies to make purchasing your home insurance easier online.

But, as insurers struggle with increased health pay-outs, life insurance pay-outs, slower business and increased challenges in operating, you may find your 2021 premium increased.

If you are having difficulties with your insurer, remember that the staff on the other end of the phone are just employees. They are following orders from their employers. Not only that, but they also are struggling with the same Coronavirus fears and worries as you. Keep calm, and be respectful to the person you’re speaking to. We will get through this, together.

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Watch My Wallet has everything you need to know about money, written by real people who’ve been there. Inspired by the philosophy of Early Retirement Extreme (ERE), our goal is to make informed decisions about our finances in order to achieve financial independence.