Crime down, but not premiums: Lee Rodwell explains why fewer burglaries may not mean cheaper insurance for the home

CITY dwellers may be heartened by the latest Home Office figures showing that crime dropped in most big urban areas last year. In London, for instance, burglaries were down by 10 per cent.

However, householders looking for a drop in their insurance premiums will be disappointed. Official figures, even those that show crime is falling in your area, are unlikely to affect the cost of insuring the contents of your home.

Contents insurance provides cover for a variety of disasters from fire to flood, but it is cover for theft that bumps up the premium. The Association of British Insurers says that between 15 and 20 per cent of the premium is likely to relate to theft cover. Some companies, such as General Accident Direct, put the figure at nearer 50 per cent.

It would seem logical to expect that a drop in burglaries might herald a fall in premiums. But, as the ABI's spokesman, John Munro, explained: 'When it comes to setting rates, insurance companies use their own claims experience, not police statistics.'

The two sets of figures differ. Home Office statistics for 1993 show that there were 724,851 domestic burglaries in England and Wales, an overall rise of almost 3 per cent. ABI figures record 834,000 domestic theft claims - 5 per cent fewer than in 1992.

Yet even this fall in the number of claims will not lead automatically to an overall drop in premiums.

'Although the number of claims fell, the average claim increased, also by 5 per cent, to pounds 890,' Mr Munro said. 'This means that domestic theft claims remain at a very high level, pounds 745m, virtually unchanged from the record pounds 749m paid out in 1992.'

So what does affect the rates the companies charge? Insurers set a series of bands - Direct Line, for example, has 12, General Accident 17, Sun Alliance 10. Homes in areas where the claims experience suggests the risks are lowest go into the bottom band, and so on.

The areas themselves are determined according to post codes. Some companies only use the first half of the post code, the initial three or four digits. This may mean that householders living some distance away from each other, and possibly in very different local environments, will be lumped together in the same band and charged the same level of premium.

Some companies are beginning to fine-tune the system. Keith MacGregor, a spokesman for Sun Alliance, said: 'Although we generally go on the first part of the post code, we are beginning to move on to the first number of the second, because otherwise the area involved can be a wide one.

'We are trying to get down to local conditions and make it a bit fairer.'

Royal Insurance is considering similar moves. A spokesman, Cameron Thomson, said: 'At present we look at the first three or four digits, but we are looking at the possibility of breaking the post codes down further. There are cases where the present post code system may lump rough areas and superior properties together in one area.'

General Accident uses the full post code. 'With 100 brokers across the UK we get a good local feel for problems,' its spokesman said.

The insurance companies say that they review their data regularly. 'We can react far faster than we would if we just waited for police statistics to come out,' Royal's Mr Thomson said. 'Because of the sophistication of our database we can and do alter premiums. For instance, in 1992-93 in Liverpool theft rates dropped. As a result we reduced the premiums in 12 of our Liverpool post codes.'

How do the insurers deal with the roughest high-risk areas - the so-called no-go areas, usually inner-city estates, where even the police and emergency services fear to tread? Inside the industry, talk of red-lining and cherry-picking is not uncommon, but officially no one owns up to these practices. Red-lining means refusing to insure homes in certain areas or rating them so highly that the cost becomes prohibitive. Cherry-picking means accepting only the best risks.

According to Mr Munro: 'It's not a question of companies refusing people insurance because of where they live, but they may require certain security precautions or the premiums set may be unacceptable.'

There are ways, short of moving home, to reduce the costs. Most companies will offer discounts for voluntary excesses, improved security and/or membership of a Neighbourhood Watch scheme.

Shopping around might also lead to cheaper insurance. 'The industry is becoming more competitive with the arrival of the direct insurers,' Sun Alliance's Mr MacGregor said. 'Although people used not to shop around, they are beginning to.

'Contents insurance isn't yet like motor insurance, where people see what's on offer every year, but it is becoming more so.'

----------------------------------------------------------------- Break-in facts and figures ----------------------------------------------------------------- A home is broken into roughly every minute somewhere in the UK. Eight out of ten burglaries are opportunist, not planned. Eighty per cent of break-ins occur when a home is empty. Fewer than 20 per cent of homes have window locks. Items most at risk (in order) are: televisions, videos, hi-fi systems, jewellery, home computers, money, valuables. ----------------------------------------------------------------- Source: General Accident -----------------------------------------------------------------

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