The home-cover rip-off

Couple wearing raincoats in their flooded house © Getty images
Disaster cover is expensive if you’re loyal

As is so often the case when it comes to insurance, it really doesn’t pay to be loyal to your provider.

Home-insurance companies are making all of their profits from loyal customers, a new report from Citizens Advice has revealed. The charity network looked at the 2016 profit margins of a “broadly representative” sample of firms covering 40% of the market and found that 100% of their profits came from the higher amounts paid by customer who hadn’t switched for six years or more.

People who stick with the same insurer for six years are paying an average annual premium of £325, almost double the average £172 new customers pay, according to Citizens Advice. Moreover, as many as 3.75 million homeowners have held their home insurance with the same provider for 11 years or more. Of these people, up to 71% are potentially “vulnerable”, a term the financial regulator uses for people with problems such as ill health.

If you’re internet-savvy, switching insurer is simple. Take your renewal quote and tap your details into a couple of comparison sites, such as Go Compare or Compare the Market. Take a look at the cheapest few options and make sure they are offering the level of cover you need, then simply sign up to a new policy to start the day your current one expires. Unfortunately, if you don’t have access to the internet, switching supplier is a lot less straightforward.

The easiest option may be to ask a friend or relative who is comfortable on the internet to help you shop around. Otherwise, consider using an insurance broker who can search the market on your behalf. It’s generally worth haggling with the provider to try and get a better deal, however. And if you can, pay the premium all in one go, as pay-monthly options tend to be more expensive.

Finally, give yourself time to track down the best deal. Interestingly, a Money Saving Expert analysis of quotes from the four biggest comparison sites on the market found that buying your home insurance three weeks ahead of the start day can save you 20%, relative to leaving it until the last minute. “It’s all based around risk – buying it three weeks before you need it suggests you’re more careful and organised, while leaving it to the last minute means you’re seen as a higher risk.” For instance, insurer Direct Line says that it sees “a correlation between last-minute purchasing and higher frequency and severity of claims”.


Pets prove pricey

Pet owners are being ripped off by an insurance industry “ballooning out of control”, says Ben Wilkinson in the Daily Mail. It now costs more to insure the average cat than to cover a house and its contents. Many owners have to ditch their cover because their insurers are hiking costs to “staggering levels”. Those who do manage to pay their premiums then discover their policies will not pay out when their animal falls ill.

The problem is that many policies have very restrictive limits on how much they will pay out per condition, tied to high excesses and a reduction on payouts for older animals. In one case, these three elements combined to see a claim for £342 result in an 80p payout. It may make more sense to self-insure (build up a savings fund for an emergency). Just keep in mind that while the average cost of surgery is £1,500, an ongoing treatment such as chemotherapy could come in at £5,000, according to MoneySuperMarket.

If you have a dog, check your home-insurance policy to see if you have public-liability insurance to cover your dog’s actions. Cats don’t pose the same problem, as they are classed as “free spirits”, so owners aren’t legally responsible for their actions.


Pocket money… Isa early birds get a juicy worm

• In March 2017 the Family Building Society launched a “Brexit bond”. You could open either an “Optimist Bond” or a “Pessimist Bond”, depending on how you thought the pound would cope with Britain leaving the European Union.

If you expected it to strengthen, you opened an Optimist Bond. This would pay you a 2% bonus on your savings if the pound was higher on 29 March 2019 than it was in March 2017. A Pessimist Bond paid the bonus if the pound was weaker. We noted at the time that as the bond came with a minimum investment of £10,000 and the interest was only paid to the winners at the end of the two-year period, it wasn’t appealing compared with the best fixed-rate cash account.

Brexit hasn’t happened, but the Brexit Bond has now matured, providing the latest reminder that when it comes to our savings, we love gimmicks. The optimists won as the pound has risen marginally in two years. But they were in the minority, says Harry Brennan in The Sunday Telegraph. More than half of the investors were pessimists.

• TSB has unveiled its “fraud refund guarantee”. The bank has pledged to reimburse customers in full if they are the victim of a scam. “The move – a first in the UK banking industry – is a new strategy to tackle the fast-growing problem of bank fraud in the digital age,” says Rebecca Smithers in The Guardian. It is expected to protect losses from all types of transaction fraud up to £1m.

You can generally get a refund for losses where a criminal takes money from your account without your knowledge. TSB’s move clears up a grey area where individuals unwittingly authorised payments to fraudsters and were then unable – or had to fight – to get their money back.

• Spring is when smart investors can take advantage of new allowances to boost their portfolios, says Jeff Prestridge in The Mail on Sunday. Early birds who invest their £20,000 individual saving account (Isa) allowance right at the start of the new tax year could be £12,500 better off over a decade than someone who waited until the last day of the year, says broker Interactive Investor. That figure assumes you invest the full allowance at once and enjoy 5% growth a year.