Cut-price war in home cover

THE COST of home insurance cover for millions of policyholders is expected to fall as competition increases between direct insurers, building societies and telephone broking companies.

The drive towards cheaper home cover comes as more companies set up telephone- based insurance companies and pass on the benefits of lower overheads to customers.

Increasing numbers of clients are prepared to shop around rather than stick with existing policies.

Research by Guardian Direct, a newly launched telephone insurance company, showed that in 1992 10 per cent of Britain's 30 million householders changed their insurer. Last year, the figure doubled to 20 per cent and it is expected to be even higher in 1994.

Companies such as Direct Line and Guardian Direct that underwrite their own policies don't pay brokers commission, which usually averages between 13 and 17 per cent of the cost of a premium.

Churchill Insurance is the second-biggest direct insurer after Direct Line, with about 75,000 home insurance policies. Chris Kennedy, business development director, said: 'The price war in the car insurance market, started by the direct insurers, is inevitably going to spill over into the household insurance market.'

There are signs that the war is creating victims. Swinton, the insurance intermediary, last week announced it is to close almost 10 per cent of its 690 branches as it switches to a telephone broking service.

Building societies are fighting back. In July, National & Provincial launched its own home insurance service, which claims to undercut many of its rivals because N&P has been able to squeeze discounts out of the insurers it deals with.

Norwich and Peterborough last week launched a general insurance division. Cheaper quotes will result from giving customers greater choice about levels of cover and cutting out unnecessary frills.

Ken Hughes, deputy general manager at Norwich and Peterborough, said: 'The cost of buildings insurance is dropping and contents cover will also fall in some areas. But in other areas it will simply stabilise, while in some high-risk parts of the country it will either stay where it is or people who have made a claim may find that they become uninsurable.'

Traditional brokers are also retaliating against direct insurers. Last week CE Heath, a nationwide broking company, launched a telephone insurance operation, Premium Search, which plans to offer buildings and contents cover from a range of insurers including Guardian, Eagle Star and Lloyd's brokers later this month.

Philip da Silva, sales and marketing director, said: 'We will provide a quote for anyone regardless of where they live, or what risk they are.'

Although Premium Search is not guaranteeing to be the cheapest, quotes will be competitive compared with other brokers because it cuts out the expense of running a branch network and will, in effect, return some of its commission to its customers.