It has been revealed that home insurers increased premiums in 2008, despite the cost of firms meeting claims plummeting.

According to the AA British insurance premium, the average quoted premium for an annual buildings-insurance policy sored 7.5% during 2008.

Most of the rise came during the last quarter of 2008, when premiums jumped 5.3% statistics have shown. That is despite rebuilding and house price costs declining. Property prices dropped 16.2% in 2008, which is the biggest yearly decline since records began in 1983.

Darren Black from an insurance company said: “Market value is, obviously, a rateable question in a home-insurance quote, but the more important figure would be the rebuild costs.”

However, because builders, tradesmen and merchants are being hit by the credit crunch, these are dropping too.

According to the Royal Institution of Charted Surveyors’ Building Cost Information Service (BCIS), rebuild costs fell 1.2% in the fourth quarter of 2008.

Joe Martin, BCIS director stated: “Building costs started to come down last August, but haven’t yet been passed on to homeowners.”

The downfall in the construction division has led to an excess of building materials being sold off at discount prices, while labour costs are under pressure amid the downturn.

Black said: “Building firms are fighting for lucrative insurance contracts and are becoming more competitively priced.”

Martin said some insurers might start to cut premiums, but others would prefer instead to hold back their increases when rebuilding costs start to rise again.

Home insurance increase worldwide

Meanwhile, the increase in policies has swum across the pond to America, where the public are also outraged by the sudden hike in home cover.

In Eastern Carolina, they are getting ready to cope with a home insurance rise that will see policies increase by 4%, unless residents live in the coastal areas.

The cost there though is worse, reaching a 30% increase in homeowner premiums. Rates, are not the only things rising, deductibles are too.

“Insurance rates here are catastrophically high compared to the rest of the state, at least five times higher than Charlotte," said Tom Thompson, Beaufort County economic development director.

A typical homeowner in Eastern Carolina could end up paying three to nine thousand dollars just for deductibles before the insurance companies ever pay a penny.

Insurers claim that if a storm hits the coastal areas of Eastern Carolina they would not be able to pay for damages, meaning small insurance businesses will go out of production, in turn affecting the entire state.

John Grainy, an insurance company owner said of the hikes: "The coast should not bear the entire brunt of exposure to hurricanes. There is state-wide risk. Remnants of hurricanes coming out of the coast even bother mountain areas. Yes, we should pay higher rates but those rates should be proportional."

The organisation said it plans to contact the Governor about the issue. It has also filed a lawsuit to have the rate increases reformed before May1st, when the increase it set to take over.