Three people are to blame for this

Just 35p in every £1 we pay to home insurers gets paid back to us in genuine claims. Whose fault is that?

The cost of buildings and contents insurance has gone up by about 7% in the past year, according to the AA, which keeps track of average prices. It typically now costs us £195.

All businesses must raise prices some years, and sometimes by greater than inflation. That's not a crime and it's not necessarily a rip off. What is of more concern here is how little we get back in claims.

For every pound we pay in premiums, we're getting back just 35p in paid, genuine claims. Even the National Lottery pays better than that, as ticket buyers win an average 50p in prizes for every £1 staked.

That does not mean you should go out and spend your home insurance on lottery tickets. That would be like giving away nearly £200 but expecting just half of it back in return. Home insurance still remains for most of us not an optional extra when it comes to insuring against major events, such as a serious theft, flood or fire. (The latter happened to our editor once. Read about it in Eight reasons to switch your home insurance policy today.)

That said, it's not working as well as it should, and there are three different groups to blame:

1) The insurers are to blame

Unsurprisingly, the insurers are largely to blame for the high price we pay compared to the small amount we get back in successful claims.

To start with, many people buy products sold to them by salespeople at their bank or by responding to their bank's postal marketing. It's particularly easy to add on home insurance when the salesperson is selling you a mortgage, for example. Since so many customers sign up there and then, without taking the time to compare prices, there is no incentive for banks to give us a good price, so it is natural that they don't.

Banks' pricing power pushes up the average cost of insurance, but it doesn't explain the whole story. Home insurance may seem like a simple product, but it is a very wordy contract with lots and lots of conditions. All insurers, not just banks, put many exclusions in home-insurance contracts, and it is these that give them plenty of room to reject claims that you might have thought were legitimate.

Although they are legal contracts, they also appear frequently to be open to interpretation. It is surprising how often I read about complaints where an insurer has interpreted a clause differently to the customer. (By the way, if you disagree with how your insurer is interpreting yours, it is worth complaining to the Financial Ombudsman Service, which says it will usually award in the customer's favour when a contract is genuinely ambiguous. I wrote about claims made to the ombudsman in You versus your home insurer.)

Insurers are not all as bad as each other. Some don't seem to attract as many complaints and the contract terms for each insurer aren't identical. And the high cost and poor return of home insurance is not all down to the insurers.

2) The insurance cheats are to blame

As far as insurers are concerned, they pay out 55p for every pound they take in premiums. That is still not a number that fills me with joy, but it's better than my headline one.

The reason why we get even less is because of insurance fraudsters. It is estimated that they take around 20p per pound we pay in premiums, passing the bill to those of us being honest, and therefore leaving us with just an average 35p in benefits per pound we pay to insurers. Insurers believe that honest customers are being conned out of about half a billion pounds a year, adding £40 to the average premium.

That could be wrong. I'm basing my calculations on figures and reports that mostly come from the insurance industry. Arguably insurers are happy to blame fraudsters for high premiums. However, weighing all the evidence I've seen, I'm inclined to believe it's true or close to the truth.

Extensive research and surveys have shown that one in ten commit insurance fraud, and home insurance is the biggest area where perpetrators of fraud do this, e.g. by damaging carpets to get new replacements or by adding an iPod or two to their theft claims. It is a crime committed by many people from all backgrounds and it costs other people real money.

If you do this, I resent you for it. I think you should be ashamed of yourself, especially if you can afford to buy replacements yourself.

3) The insurance buyers are to blame

When I was in the industry, now seven years ago, home insurance customers switched on average every 10 years. This has probably come down with better use of the internet, but I reckon most people still renew through their existing insurer without thinking too much about it. Doing this, you can expect at best that your price will just drift slowly upwards compared to new customers. At worst it'll shoot up.

Fellow writer Cliff D'Arcy had to dig out last year's quote before calculating that his latest renewal price was 54% higher. (Read about it in Avoid a 54% hike in your home insurance.) It has not been his experience, but in some years insurance prices actually fall. No joke. If you get a letter saying your insurer is delighted to give you the same price as last year, you should be suspicious. If it gives you a reduction, you should be wondering how big a reduction new customers elsewhere are getting.

By shopping around you can expect to save, on average, more than £30. That'll bring your own personal claims ratio (if you're honest) up from 35p to a slightly better 40p in the pound. It's not a large change, but at least that £30 isn't going to fraudsters or insurers.

Compare home insurance through lovemoney.com.