In 2005, Buildings Insurance increased on average by 1% to just over 205 for UK customers, and Contents Insurance rose to 151 on average, that's a 2% increase. But within some of the mainstream insurers the price increases have been even more noticeable, with Norwich Union customers experiencing a premium increase of around 6%.

So why is this happening? Naturally premiums are going to increase with inflation, but with all the competition out there, why are premiums going up and not down?

Let's study the situation in detail.

The cost of repairing and rebuilding houses

Labour and building materials increase every year, and therefore so does the cost to the insurer when people make a buildings insurance claim. Cost inflation also affects the insurance companies' own operating costs as they have to pay higher bills, more wages etc. It's to be expected that insurers will add on a little extra to cover these issues!

The British weather

Michael Fish got it wrong that infamous day the hurricane hit, but even though that storm came from the blue, it is a fact that storms, especially floods, have been increasing in frequency. According to the Association of British Insurers, flood damage causes huge waves in the insurance industry, with an average insurance claim of anywhere between 15,000 and 30,000. In the last 18 months we there have been some extremely destructive floods that have affected whole communities, namely Boscastle in Cornwall, Carlisle, and Helmsley in North Yorkshire. Those catastrophic floods will have the cost the insurance industry millions of pounds.

Burglary

Burglary claims have increased in value, and now average at around 1,400. There are 2 main reasons for this:

Many people have houses full of the latest electronic technology from Ipods to laptops, Playstation 2s and digital cameras. These are all expensive items and as far as the burglar is concerned, have a high resell value. Burglars find themselves spoilt for choice!

Burglars often target well-off neighbourhoods with expensive items like jewellery in the house, the value of the claim shoots up.

In light of this information, the insurance companies base their quotations on other claims that have been made in the postcode area. If a particular problem with flooding or subsidence has occurred within your postcode area, then you will pay a loaded premium. Similarly, if a lot of your neighbours have suffered break-ins, then you will suffer a higher premium because as far as the insurance company is concerned, you are more likely to make a claim.

A no-claims discount will help to offset the pressure of increasing premiums, but after 5 years they cap your discount, and it can no longer protect you from the general premium increases levied on all their customers.

So is there anything you can do to escape these rising premiums?

The easiest, and the most effective, solution is to make sure you shop around for the cheapest deal, every time the policy comes up for renewal. It's not much fun but it will only take 30-40 minutes of your time and you will no doubt find a cheaper quote than your insurance company can offer you on renewal. Applying online often gets you an extra 10% discount, and paying by direct debit will also trim off a bit more. Take a look on this website and you may find the cheapest deal is already ready and waiting!

There are other things you can do to reduce your premiums, for example home security. Insurers look kindly on neighbourhood watch schemes, and give discount if you have security locks on your windows. External security lighting, better locks on your external doors and a burglar alarm will also see your premiums go down. Of course it will cost you money to install these security devices, but they will also make your home less of a target to burglars. The neighbourhood watch scheme comes for no extra cost though!

As a general rule, don't just blindly accept you insurance company's renewal quotes. They offer the best deals to their new customers, not their loyal customers that have been with them for years. You could save considerably by shopping around, so it's definitely worth a try!