Property Claims Inflation Calls For Home Insurance Sums

April is Mathematics and Statistics Awareness Month and doing the sums is somewhat crucial for homeowners right now.

Leading insurers are already talking about the need for home insurance policyholders to be making sure their calculations are accurate and that their property is accurately insured. They are pointing to the impact that Covid production slowdowns, global supply issues and shortages of materials following lockdown refurbishment fever have had on the cost of the raw materials used in property repairs.

These leaders are also highlighting how Brexit and the rise in the minimum wage, announced last October and now in place, have pushed up labour costs. They are talking openly about property claims inflation.

So why must homeowners brush up on their maths? Well, it’s all down to the ‘sum insured’. This is the core principle behind any home or commercial property insurance policy.

The sum insured on your building’s home insurance policy should reflect the rebuild cost of your property. It’s not about the market value of the home. Instead, it’s about how much it would cost you to rebuild it, should it all be destroyed.

That is directly influenced by the cost of both materials and labour. However, in a time of rapid inflation, we are likely to also see the fees of professionals such as surveyors and architects increase. All of these costs need to be factored into the sum insured. Not to forget allowances for other services, such as debris removal, should that prove necessary.

If you do not do the sums correctly and realistically calculate what all of this costs, you could be underinsured.

If you underinsure your property, by not accurately calculating the sum insured, it can be a very big problem, if you then need to make a claim and your insurer – or their representative, the loss adjuster – spot this.

Your insurer will either turn down your claim outright, or reduce the pay-out according to the degree to which they find you are underinsured. This practice is called applying ‘average’ and it may well be mentioned in your policy. If they feel you have deliberately miscalculated the sum insured, they are likely to take the first option, void the policy and pay nothing.

Average is not just applied to total losses, where a home is completely destroyed and needs rebuilding. If you are underinsured, it will be applied to any claim you make. So, for instance, your accurate home rebuild cost could be £400,000. You may, however, have only insured the property for £300,000. This means you are only insured for 75% of the accurate value. If you make a claim for say £25,000, the insurer’s application of average would see you only getting a pay-out of £18,750, less the policy excess. You would need to find the missing £6,250 for the repairs. If, of course, the insurer felt the mistake deliberate, you could receive nothing.

If you are underinsured, there is really nothing you can do to argue against an insurer’s decision. It may be possible for our loss assessors here at Property Claim Assist to argue against an assertion that you deliberately underinsured the property. They can potentially move the insurer towards a decision to apply average, instead of a total refusal to pay the claim and voiding of the policy. However, that is about the best outcome that could be achieved.

It is not always the case that the loss adjuster’s assertion that you are underinsured is true. There have been instances where that viewpoint has been successfully challenged and where it has been proved that it was their calculations that were inaccurate. If you believe their calculations to fall into this bracket, please get in touch with us, for a second opinion.

Now is the right time to do the sums and check on your sum insured. With costs shooting up, if your policy’s sum insured has not been reviewed for a number of years, it may well be out-of-date. If it was always just about enough, it is likely to no longer be so. Additionally, insurers do sometimes give a little leeway on sums insured – around 10%. If property claims inflation now means that your underinsurance exceeds that, you could find yourself in real financial trouble. That is if you suffer property damage and have to make a claim.

Need help with calculating your sum insured? You will find tools online or you could use the services of a RICS surveyor. If you do use a RICS service, you will need to then add VAT to the figure they provide.

If you feel your sum insured situation has been too harshly adjudicated during a claim, please get in touch and let us review the situation. Just call us on 0333 577 2720.