The increase in home insurance premiums each year is normally expected, just as everything else in society increases in price with inflation.

But the price of home insurance is nothing simple.

While the average cost of home insurance rises quite consistently there are also plenty of examples of it breaking out into sharper increases than other products.

The total increase in home insurance premiumsfrom 2017 to 2020 is 27% according to Moneysupermarket.

Remember that a lot of insurers save their best deals for new customers and pay for that by increasing renewal prices for old customers.

This is the kind of unethical practice Emerald Life was started to end.

If you think your home insurance renewal has gone up too high then make sure to shop around and find a better deal for the same cover.

At Emerald Life we aim to beat your existing renewal by 10% for the same cover – and while that’s reserved for new customers we do not massively increase prices on renewals.

Before looking at the increase in home insurance premiums it is worth thinking about inflation. Inflation is quite easy to see even if you don’t understand it.

A classic example is the Freddo chocolate bar which has increased in price significantly over the past 10 -20 years.

Inflation is a by-product of living in a capitalist society. As the economy expands things get more expensive. With greater productivity, supply and demand adusts prices accordingly. A healthy economy means more people can afford to spend more, but their salary demands may make products cost more to produce.

Inflation works at a fairly consistent low rate. However, every market has its own rate of inflation and deflation. Take house prices for instance, which over a few decades have seen a huge increase well above inflation. On the other hand, UK average salaries have barely kept up with inflation over the last 10 years.

Generally these things are not worth worrying about because you can’t do much about it. If you have large cash savings then you are probably aware of using a high-interest savings account or investing in assets to guard against inflation.

But in terms of what you spend on insurance thanks to inflation, or a Freddo for that matter, there’s not much you can do. The total increase in home insurance premiums over the last three years is 27% according to Moneysupermarket.

However, while inflation is your enemy, free markets are not. Home insurance is a very crowded and competitive market. There are hundreds of brands fighting for your custom – just look at how many TV adverts you see. Every time prices go up, that is an opportunity for some insurers to drop prices and get ahead of the competition.

How Does Insurance Pricing Work?

Insurance is a world of its own – partly because it is largely driven by risk. If one year sees a lot of disasters then insurers are likely to increase premiums to make up for the money lost in payouts. On the other hand, if they have priced in risks that haven’t materialised they may reduce premiums, especially if there is competition in the industry.

The 2020 Coronavirus pandemic clearly created all sorts of changes in the activities of households which had a small but not insignificant impact on home insurance premiums.

For instance, more people at home meant far fewer burglaries but more claims for accidental damage. Emergency economic legislation also meant insurers had to keep funds back to allow customers to defer payments if needed.

With insurance there are also other factors at play as you are protecting assets of a certain value. For instance, the cost of your buildings insurance may go up if your rebuild value goes up based on the costs of materials and labour – although in reality this increase is quite small.

On the other hand, there are wider market trends such as the sums of contents insured. Now that more and more households are insuring lots of valuable gadgets, that has seen an increase in the amount of contents insurance the average household needs.