Are you a victim of the home insurance postcode lottery?

How much difference can a postcode make?

There is a substantial price range depending on where you live. One study found that for a three-bedroom house, prices could range from as little as £184.52 to as much as £903.81: almost five times as much.

That said, it's worth nothing that the range of prices depends on whether you are looking at policies people have actually taken out, or the premiums on offer for a hypothetical home. The difference is down to the level of cover: often people in areas more at risk of theft will have less expensive possessions so require lower cover limits, while people in relatively safe areas may need higher cover. These effects somewhat reduce the effect of the postcode lottery, but certainly don't eliminate it.

Is the phrase "postcode lottery" really fair?

To a large extent, there's no lottery about it: insurers base their premiums on objective indications of risk such as crime in the area. In many cases, there are perfectly good grounds why insurance should be more expensive in, say, an inner city location compared with a rural village.

Where things get less fair is in places where crime doesn't follow a distinct pattern and "good" and "bad" areas are mixed in with one another: this is particularly common in cities. In these situations people may feel very aggrieved if they face higher premiums than people who live as close as the next street but come under a different postcode.

Is crime the only factor?

Premium variations are also subject to environmental factors. While fortunately most Brits don't have to worry seriously about the risk of devastating earthquakes or tornados, the potential for flooding can significantly influence premiums. While there are tight restrictions which limit the ability of insurers to refuse cover in at-risk locations, they can and do alter premiums depending on flood risks.

How can I overcome the postcode lottery?

If you are in an area which is genuinely at greater risk of crime, you may have to consider that higher premiums are simply a fact of life. However, depending on the value of your possessions, your assessment of the risks, and how much spare cash you have, you may be able to mitigate the effects.

One option is to put a lower limit on the cover offered by the policy, which will usually mean lower premiums. Think carefully before doing this as many people vastly underestimate the true costs of replacing belongings, particularly in incidents such as a fire which wipe everything out.

Another option is to agree to a higher excess in return for a lower premium. This is inherently a gamble, but if you are able to afford the extra potential losses, and if you are confident the actual risk of theft is lower than the premium suggests, it could make sense.

A third possibility is to take advantage of no-claims discounts. With some insurers offering substantial discounts after a few years, it may work out cheaper to take minor losses such as accidental damage on the chin rather than make a claim.