Home insurance price increases

You will be only too aware, not only as a broker but as customers yourselves, that the cost of insurance has rocketed over the last few years, not just home insurance premiums but that of car insurance too.

I thought it would be useful to give you an update on what is happening in the markets and what we at Cavere Insurance are doing to help you and your customers in these difficult market conditions.

Home insurance prices started to rise in 2022 following the FCA intervention (the Home and Motor pricing remedies) and have been gathering pace ever since. The market has seen premiums rise by over 25% in the last twelve months alone, and most analysts are predicting that net rates are set to increase by a further 36% over the next two years. This is due to a number of factors that have resulted in insurers experiencing their worst period of underwriting in decades. Weather events, increasing inflation, reinsurance costs, and strained supply chains have all contributed to driving up home insurers’ losses. The sector reported an average net combined ratio of 122% in 2022/3.

The recent announcements by RSA and Zurich to exit the UK Home insurance market altogether are also likely to harden the market further, and together with the factors highlighted above, we can all appreciate the pressure this will add to already stretched household budgets.

You will have no doubt seen an increase in customers contacting you asking you for help in finding cheaper cover as their renewal invites from all insurers land on their doorsteps. This may also present you with an opportunity to find new clients and support your existing customers.

What are Cavere doing to help?

You will already know that Cavere only sell 5 star rated home insurance and if ever there was a time when your customers need to rely on their home insurance paying out in the event of claim, it is when money is tight and the risk of financial shock is at its greatest. This doesn’t mean of course that you can’t save them money. You can help your customers review the cover they have with a view to removing some elements that are less critical, rather than buying cheaper/poorer quality cover overall. You may also wish to sacrifice some of your commission in order to retain the customer and reward their loyalty. Customers may also want to increase their excess to reduce premiums. All this can be done either at new business, renewal or mid-term with no charges or admin fees. Your customers can call us directly or we can amend the policy on your instructions.

A factor that compounds the problem of rising premiums is the percentage of commission charged. As net premiums rise so does the amount of commission paid (in cash terms) to brokers.

As you know, we are all now required to view how we price products through the lens of the new Consumer Duty, ensuring that we are fair to customers whilst continuing to provide access to products that meet their needs. After careful consideration, we have concluded that in the current climate, it is not justifiable to allow the commission paid to increase at the same rate as the net premiums. To this end from the 1st of May 2024, we will be capping the maximum commission loading for new business and renewals at 27.5%.

The reduction in commission will be passed directly to your customers in premium reduction, and will hopefully help you to help and retain more customers in this difficult market.

In most cases your commission earnings will still be higher than in previous years, just a slightly lower percentage of a higher premium.

We will be confirming this change to you separately as an amendment to your terms of business agreement in the coming few days.

Since Cavere started trading in 2010, we have always prided ourselves on being able to pay more commission per policy than most of our competitors and remaining competitive on overall price. We believe this remains true even more so today. Cavere have always had a fixed administration charge rather than a percentage of premium, which means as premiums rise, we become increasingly more competitive than that of many of our competitors. If you have not quoted with us for a while, please give us a go.

At Cavere we believe in transparency, which is why we have never price walked our premiums (even before the FCA intervened to outlaw the practice) We have also never charged customers extra for paying by direct debit, making a mid-term alteration to their policy or to cancel. One of the reasons why over 90% of customers renew with us each year.

We have always paid you commission on the full price paid by the customer (net of IPT), unlike some other providers where they do not pay you commission on their premium finance charge or the policy admin fees they add on top of the insurance premium. The result being that the commission you receive from us is not only a higher % but on the full amount charged to the customer.

I hope this helps you manage expectations with your customers and wider teams.
If you would like to discuss anything included in this update, please do not hesitate to get in touch.