Insurers' "Cherry Picking" Leads to Insurance Crisis for Homeowners

Strategic Insights -

Homeowners are struggling to secure contents insurance due to increasing premium costs and discriminatory practices by insurers. A recent report by Which? highlights the "growing trend of `cherry picking' insuring the good risks and excluding the bad" (Which?, n.d.). Insurance companies, despite announcing record profits, are adopting a policy of risk selection and premium hikes to recoup losses made in the mortgage-guarantee business and soaring theft and burglary claims. Consumers' Association finance and economics research group member Murray Jones warns that this trend may leave a large group of people uninsured.

Key Takeaways:

  • Insurance companies are adopting a policy of "cherry picking" insuring only good risks and excluding bad ones.
  • The practice of risk selection and premium hikes is leading to a large group of people being uninsured.
  • Homeowners are being refused insurance or offered high premiums due to minor claims history.
  • The average theft claim is around £900, but insurers are discriminating against homeowners with minor claims.
  • Insurers' refusal to provide cover without detailed claims history is causing concern.
  • Alternative insurers such as Lloyd's syndicates offer high-risk and non-standard insurance options.
  • Insurers' use of electronic data-information systems to pool clients' insurance records is a matter of controversy.

Statistics:

  • The average theft claim is around £900 (Murray Jones, personal communication).
  • In the past year, Sun Alliance reported a 260% increase in premiums for a £13,000 contents insurance policy.
  • Guardian Royal Exchange refused to quote for people with three or more claims in the past five years.
  • Direct Line also refused to quote for homeowners with more than three claims in the last three years.
  • Folgate Insurance Company offered a premium of £370 for £15,000 of cover with a £150 compulsory excess.

Sources:

  • Which? (n.d.). Report on growing trend of "cherry picking" insuring the good risks and excluding the bad.
  • Consumers' Association finance and economics research group (n.d.). Statement from Murray Jones.
  • The Sunday Times (1994, n.d.). Article on insurance crisis for homeowners.
  • Protection House Insurance Services (n.d.). Statement from a spokesperson.
  • Association of British Insurers (n.d.). Statement from John Munro.
  • Lloyd's (n.d.). Information on Lloyd's syndicates offering high-risk and non-standard insurance options.