Home insurance without mortgage - impact on premiums?

14Westfield

Hi all,
we will soon have paid of our house mortgage but just before that will renew our home and contents insurance.
Should we bing forward paying it off so that the insurance in on a non-mortgaged property?  Would that mean home insurance quotes would be any cheaper?

JGB1955

Our combined home and contents insurance on our mortgage free home (with accidental damage cover) is less than £140 per annum - I really can't believe paying off your mortgage would make any difference at all but you could always put in two different scenarios into your preferred insurance comparison site.....

davidmcn

Why would having a mortgage make a difference to the premium?

eddddy

There's no obvious reason why not having a mortgage would make you a lower risk (or higher risk).

However, it's very possible that some insurance companies do computerised analysis of their past claims history. (To use the jargon, it's called 'Machine Learning' or 'Artificial Intelligence'.)

• It's possible that the analysis would show that people without mortgages tend to make more and/or bigger claims - so the insurance company charges them higher premiums.

• But it's also possible that the analysis would show that people without mortgages tend to make fewer and/or smaller claims - so the insurance company charges them lower premiums. 

That kind of info is likely to be commercially valuable/sensitive - so the insurance companies are unlikely to disclose it.

I guess you could do a bit of experimenting on the comparison sites to see if having or not having a mortgage impacts premiums. (But use a dummy name and dummy address, to avoid a fraud risk flag being put against your real name and address.)

Sandtree

eddddy said:

There's no obvious reason why not having a mortgage would make you a lower risk (or higher risk).

However, it's very possible that some insurance companies do computerised analysis of their past claims history. (To use the jargon, it's called 'Machine Learning' or 'Artificial Intelligence'.)

Insurance risk isnt the only thing that impacts premiums though; it is possible that the fact someone is now mortgage free will imply they are in a higher socioeconomic position than is average for their postcode, this could have an insurance risk consideration such as being less prone to committing fraud (less need to liquidate assets to pay off debts via "accidentally" dropping them) or can mean they are less price sensitive (cash rich, time poor) and so will potentially stomach a higher premium for higher quality cover and simplicity.

All insurers do analysis of their past claims history but not sure how many are yet allowing AI or ML to actually set pricing rules just yet... maybe some periphery elements like fraud risk and customer elasticity but these things cause nightmares with marketing slogans like "10% discount for buying online" as you have to ensure the code produces the same results across all channels etc which is more difficult than it sounds if the ML is evolving the logic as it goes.

eddddy

Sandtree said:

All insurers do analysis of their past claims history but not sure how many are yet allowing AI or ML to actually set pricing rules just yet... 

They would be using the results of AI (Machine learning, Data Mining etc) to set pricing rules.

At a simple level, that's how they get the pricing rules for postcode, age, type of property.  Their 'Data Scientists' will be using AI to look for factors (or combinations of factors) which influence risk/claims.

For example, the AI based analysis might determine that people aged under 30 with no mortgage with 3 or more bedrooms seem to be higher risk (or higher claimers). Whereas people aged over 65 with no mortgage living in a flat seem to be low risk (or low claimers) - and factor that into their pricing rules, whenever the pricing rules are next updated.

As time passes, the results of ongoing AI will be used to update the pricing rules. (Machine Learning doesn't imply that pricing rules have to be updated in real time, for example as a result of claims received yesterday, or 5 mins ago.)

There are other AI techniques (like neural networks) which the insurers might be using to analyse individual applications or claims etc, such as...
Potentially fraudulent applications
Potentially fraudulent claims
A customer's potential loyalty /  propensity to churn
Customer segmentation for marketing decisions and pricing decisions
 

jaybeetoo

My buildings and contents insurance went down after I paid off the mortgage.

Sandtree

eddddy said:
At a simple level, that's how they get the pricing rules for postcode, age, type of property.  Their 'Data Scientists' will be using AI to look for factors (or combinations of factors) which influence risk/claims.

I know how pricing works, was doing it 20 years ago and there were guys in the team that had been doing it a decades before me but there was no need for "AI" to do statistical analysis on claims history -v- segmentation and layer onto it the elasticity modelling to calculate the financial impact caused by premium change -v- conversion rate movements.

Maybe we just have different standards and what to me was simply large batches of code is what you'd consider AI