Floods hit buildings premiums

Buildings insurance premiums will rise this year on average by twice the rate of inflation as insurers shift the high cost of paying for repairs on flood damaged properties to their policyholders.

Research company Datamonitor said in a report this week that insurers had been hit with bills totalling ?3bn last year, the largest amount since 1990. Storm damage accounted for nearly 50% of claims.

Many insurers lost money on their buildings and contents insurance businesses and are looking to drive up premiums before the end of this year to put themselves back in profit, says the report.

Worst affected homeowners will be those with policies taken out with their mortgage lender. For several years studies have shown that mortgage lenders charge their customers nearly double the average cost of buildings insurance that can be obtained on the open market.

When times are bad, mortgage lenders also hike their premiums by more than the market average, according to broker AA Insurance.

Becky Hadley of the AA, says the firm has seen a 1% rise in prices in the first three months of 2001 and expects to see a rise of 5% by the end of the year.

"After a period of stability, these premium rises spell bad news for homeowners. In our view, this is the first sign that home insurers are starting to pass on losses from bad weather over the winter to customers."

She adds: "Rates are enormously different between the mortage lenders and the general market. Our last study showed that banks, building societies and other mortgage lenders could be about £100 a year higher on an average £134 buildings insurance bill."

Consumers can reduce these costs to £92 - a reduction of 31%, she claims. The AA and rivals such Direct Line and Co-operative Insurance Services, will also pay fees to switch provider levied by mortgage lenders, which usually amounts to £25.