How much is your postcode costing you?
What does your postcode say about you? N2, loaded? SK9, WAG? CA20, industrial? The answer is: more than you might think. It is not just that this mix of letters and numbers labels you as living on the right or wrong side of the tracks socially; your postcode can also affect what you pay for everyday bills.
The combination of letters and digits first came into being in 1959 and applied to the whole country by 1974. All properties have one - even Buckingham Palace: SW1A 1AA – and they were originally designed to make postal sorting and delivery more efficient.
But over the years businesses have been tapping into the codes to figure out what products and services you might buy because of where you live, and in the case of insurers, what you might set them back in terms of claims.
By looking at past claims made in your area or street for burglary, flood damage, subsidence, motor accidents, theft or private medical treatment, they can adjust your premiums accordingly.
Some companies, such as medical insurers, have a broad-brush approach and use area codes, for example CR8, which covers a distance of several miles and thousands of properties. Others, such as some home insurers, drill down to the full postcode – for example CR8 2EQ, which covers 100 or so homes. So neighbouring postcodes may pay different premiums.
For inhabitants of the most crime-ridden or geographically challenged areas this can lead to sky-high premiums from insurers - or worse still, refusal of cover - even if you have never made a claim in your life.
Motorists have seen their premiums shoot up by a staggering 40% on average this year, a trend blamed by insurers on an epidemic of uninsured drivers, a surge in fraudulent claims and spiralling numbers of personal injury payouts.
Rhodri Charles, pricing manager at motor insurer Admiral, says people are often surprised London postcodes do not top the motor premiums table.
"Liverpool, Manchester and Birmingham postcodes are higher risk than London. There are just as many accidents in London but each one costs less in terms of damage and claims, probably because of the congestion and slower moving traffic," he says.
Theft plays a smaller part in the overall sums for motor insurance premiums, as the risk is limited to the value of the contents or the car. Charles says: "When there are accidents you can end up paying much bigger compensation claims. We are seeing more £1 million plus claims."
Policyholders in hotspots – often poorer areas – inevitably feel the heat in their premiums. According to Admiral, a 30-year-old married man with no children and a clean driving record who drives a 2011 Ford Focus would be slapped with a £930 premium if living in the Bradford postcode of BD3 0AQ. That's a whopping five times the £185 charged for low-risk postcode TR16 6DF in Redruth, Cornwall.
Adrian Webb, spokesperson for insurer esure, says that because 90% of all car insurance claims occur within five miles of a car driver's home, whether due to an accident, theft or vandalism, the postcode is a significant indicator in premium setting. He says: "It's not really to do with the driver who lives there but with what other drivers are doing and the people they'll run into."
In postcodes where there has been a high number of personal injury claims, drivers are becoming uninsurable, as the districts are sometimes blacklisted by certain insurers. Webb explains: "In some high-density inner city areas, for every £1 received in premiums £2 is paid out."
Home and contents premiums are also rising, albeit more slowly on average than for motor policies, but still by an inflation-busting 6%. The increases - blamed on the economic climate, the rise in fraudulent claims and the cost of severe weather-related claims – have hit some postcodes harder than others.
Recent research by comparison website moneysupermarket.com says Surrey and Scotland faced the highest premium hikes this year, with average increases of 46% for Dorking postcodes (from £119 to £174) and 45% for central Edinburgh codes (from £127 to £170), although five Greater London postcodes also appear in the top 20 most affected areas.
Postcode pricing is taking on greater importance, according to Malcolm Cooper, director of underwriting at L&G. He says in the early days L&G, like other insurers, used the broadest postal area when quoting premiums - for instance KT for the Kingston upon Thames area - before moving to the postcode district such as KT23 and then to the sector, KT23 4. "Now rating is done using the full postcode level - for instance KT23 4RP - and in some cases, where for example subsidence maybe an issue, the assessment is based on the actual property," he says.
Insurers also increasingly use sophisticated flood- mapping systems on top of the postcode analysis to help calculate risk. These can highlight, for example, whether a property in a flood hotspot might in fact be free of risk because it is at the top of a hill.
Graeme Trudgill, head of corporate affairs at the British Insurance Brokers' Association, says homeowners may be taken by surprise when moving to a new property.
"I moved recently, not a huge distance but from town to country, and I expected my premiums to fall. But I found that my old house was on chalk soil whereas my new one is on clay, which has a higher risk of subsidence," he says.
It is not only the price of your buildings insurance that is affected by issues of flood and subsidence. Although contents cover will be influenced largely by crime figures and by the amount and value of possessions in your home, its position on a floodplain or risky soil will also play a part. If your home needs underpinning for subsidence, for example, your insurer may have to fork out on storage fees for your belongings should the worst happen.
Regional pricing is also used for private medical insurance, with Aviva, AXA PPP Healthcare, Exeter Family Friendly and PruHealth all pricing on postcode, and Bupa recently introducing it for some policies.
Brian Walters, principal of Cheltenham-based health insurance brokerage Regency Health, says there are two reasons private medical insurers use postcodes. "First, because some postcodes are associated with certain areas where, statistically, people are more likely to claim.
And secondly, some insurers prefer to operate a single hospital list and then work on the assumption that people living in London, for example, are more likely to use expensive central London hospitals. Others operate both postcode pricing and hospital banding," he explains.
So if you live in London and the surrounding areas you can expect to pay higher premiums than in Wales, Scotland, Northern Ireland, or the North East.
Walters says: "There is reasonable consistency across insurers but there are some discrepancies. For example, Bradford postcodes are in a higher price band with Aviva and PruHealth but a lower band with Bupa and Exeter Family Friendly."
Walters has one London client who requested cover for his daughter, a student at Keele University. "She had two legitimate addresses: her parents' house in London and her university address in Keele, Staffordshire," he says.
"The Keele address returned a lower premium, but she will need to notify the insurer at renewal if she has moved back to London (or elsewhere), which could affect the premium. Consumers should be cautioned against using a postcode other than a legitimate home address, as this could invalidate their policy at the point of claim."
Private medical insurance
PMI allows you to skip the NHS waiting list and arrange treatment at a time you choose. With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the higher your premium will be.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This type of insurance covers the structure and fabric of your property – the bricks and mortar, not the contents (for which you need contents or home insurance). If you have a mortgage, the lender will insist you have a suitable buildings insurance policy in place. Many lenders offer their own building insurance policies, but you don’t have to buy it from your own lender but you have the option of shopping around. The insurance covers you for the rebuilding costs, not the market value of the property.