Underinsurance - insurers trying it on?

[Aleaiactaest]

OK I admit to name changing for this and I might be being unreasonable but here goes…

Just had a classic leak situation in my house. A leaky pipe behind a kitchen cabinet leaking for months causing some damage into a utility room below, some flooring etc. Have quite expensive home insurance, renewed annually etc. - it is like £1000 a year.

When I bought the house 10 years ago the building surveyor stated rebuild cost would be max 500,000k. Every year since the building sum insurance has been adjusted upwards slightly. It is now at around 750,000k which seems loads. Especially because a similar house next door was built from scratch 5 years who for about 450k and all shiny new etc.

Anyway, the loss adjuster shows up and states we are massively underinsured because apparently in the last two years according to RICS March 2020 to 2021 build cost went up 8 per cent and March 2021 to March 20212 a whopping 18.3%. He has plucked the March figure although the loss was in August and the claim is only being addressed now.
So they are not going to cover the whole leak and will only cover around 70 per cent and they want us to pay to have the house revalued properly etc etc.

Thankfully we don’t have a big fire etc. and all destroyed. But just a word of warning to others out there that rebuild costs have gone up massively.
Or are they trying this on?
Are they really going to do similar to some poor family who have lost their house in a fire etc?

You can use this calculator for free
Rebuild calculator

Check what this says then you can challenge the insurers if needed.

Some insurers offer policies with unlimited buildings cover, e.g. eSure. Worth considering that when your next renewal is due.

Surely they should pay for the whole lot up to 750k???? Different if the whole house burned down but unless there are % based limits I don't see how they can justify that???

Who has been adjusting the sum insured upwards each year, you or the insurance company?

Rebuild costs have increased drastically in the last 2 years, caused by brexit and covid, tradespeople are in short supply as well as building materials, if your house is under insured the insurer will be applying average to your claim which is standard practice.

Yes, I'd say they are trying it on. I know someone who had a fire in a rental property they owned (the property was partially damaged, not totally destroyed) and his insurance company said the same thing - it was underinsured and they'd only pay a proportion of the repair costs. He argued it and they changed their minds and covered the whole lot.

I think the industry standard used to be £500k and that was based on a cost to rebuild the property, not it's market value (which might actually be higher). I have no idea of rebuild costs and was relieved when our insurers increased it to £1m a few years ago (with no change to our premiums - which are considerably less than £1k a year BTW).

Members of the public can't be expected to know how much it will cost to rebuild their homes, and absolutely no one commissions an estimate every year to give to their insurance company! Insurers need to factor in the risk of building cost increases into their calculations when setting premiums.

Thanks for all the input.

The RICS calculator does suggest a higher rebuild cost then 750,000k but that was always adjusted upwards yearly by the broker. In March 21 it would have been 750k, this March it would be almost 900k. I had no idea nor did the broker who sold me the policy adjust it to that level.

So yes, they are saying I am underinsured and so they will only pay a proportion of the claim. So let’s say I get quotes and the claim works out 4000 they will say I am underinsured by X percentage and adjust the 4000 down by that percentage. Then they will also take off the excess of a few hundred pounds.

Anyone reading this check your property’s rebuild value on the RICS calculator to be on the safe side!!!

My house actually has a big garden too - if the property would cost 900k to rebuild plus the property value in Outer London I should really be sitting on a 1.5million property… Sadly that is not the case.

So have these rebuild costs got anything to do with the property crash everyone is talking about? Because how does that make sense if it is so expensive to build a property in the first place.

Why has the rebuild value got anything to do with your repairs though? You aren't claiming for a rebuild.
I'd threaten them with the FSA and lodge a complaint

"Members of the public can't be expected to know how much it will cost to rebuild their homes,"

Every insurer I've ever had, has always told me in writing, how and where to work out the rebuild cost. Every policy I've ever had, has warned that underinsuring risks only partial compensation in a claim.

It's a way for them to reduce they amount they pay out. Even if you don't need a total rebuild, they argue that any building repairs are proportional to the cost of rebuilding the whole property. If your insurance cover is less than what would be needed to rebuild the property, they call that being under-insured and will use it to justify paying only a proportion of any repair costs.

It's not the case that if your cover is, say £500k, and you need extensive repairs but not total rebuild, that they will pay up to £500k for the repairs. They would say, your house would actually cost £750k to rebuild, therefore you're whatever-percentage under-insured and we'll only cover a proportion of the cost of (eg) repairing your bathroom and kitchen after a water leak, not the full amount.

It's not a scam or a way to reduce what they pay out - it's how insurance works! I wish schools taught this sort of thing because it's basic and affects us all.

The thing is at SunneRising I did kind of know this is how it works but I just did a standard yearly renewal not realising rebuild costs have gone up 8, 8, and then 18 per cent in the last 3 years alone, those are huge increases because they are compounded!

It is not reasonable for insurers to expect the general public to know the reinstatement cost of the their home. The onus should be on them to estimate it not their customer. As for them then trying to wriggle out of a claim because the customer underestimated the total build cost is utterly ridiculous regardless of what it says in the small print.

It’s called the condition of average and it’s standard in insurance policies. Can you speak to your Broker given that’s who increased the sum insured each year ie you were depending on their knowledge?

I have had a leak in the floor and remarkably my insurance is paying for us to move out, refloor 5 rooms at £35 per m squared, wall tiles at the same cost, new skirting and architraves and,unbelievably, a whole new kitchen. We can't believe it! Our kitchen was 40 years old....

I wonder if it works the other way so that if you overestimate the reinstatement cost of your home you get more than the cost of your repair...

Every insurer I've ever had, has always told me in writing, how and where to work out the rebuild cost.

Ours doesn't. We've been with them for decades and just renew every year.

However I've found this in our small print:

"Index linking: The buildings limit of cover may be increased during the period of this insurance in line with the House Rebuilding Cost Index prepared by the Royal Institution of Chartered Surveyors."

Perhaps OP should check whether her policy contains similar?

The condition of Average is in every single property insurance contract. You have to insure for the whole cost of reinstatement / replacement and if you don't, then any claim would be proportionately reduced by the same ratio that you've under insured by.

If insurers didnt do this, then people would knowingly under insure, banking on the fact that they are extremely unlikely to have a total loss. Insurers would still pay out the same claims but be getting less premium and would go under. The onus is on policyholders to get their rebuild costs right and there are online calculators that can help with this. Obviously it's harder if your house isnt as 'standard' as others eg is bigger or has some special design features or in a location that makes it hard to build on.

If you have a broker though, you are literally paying them for their insurance advice - did they advise you about inflation and uplifts and checking rebuild values at renewal? This has been happening for a year so they should have. So you might be able to get them to contribute if they have been negligent in the advice they provided

From now on I'm going to overestimate by 50% so they can't try this on. They are taking the p....

Something similar with a relative’s house - apparently now the rebuild cost is £300,000 greater than the property’s maximum market valuation. It’s bonkers.

Aleaiactaest - sorry my comment wasn't aimed at you at all and probably came across as harsh. A few others seemed not to know - and I despair that the basics of insurance, finance, credit cards, mortgages, banking, marriage contracts, rental contracts, wills etc are not taught in schools or understood by so many.

I hope your leak gets fixed.

And if you deliberately over-insure that's also likely to result in a declined claim.

Thanks to this thread I've used the rebuild calculator and the calculation for my house is reassuringly well below the £1m cover of my policy. (Although now I'm worried I've miscalculated floorspace or something, as it's a lot lower than the OP's house. Maybe she lives in a mansion??) And I've downloaded a pdf of the report.

It's free to use but you need to register, and can make up to 4 calculations (per year?).

calculator.bcis.co.uk/

It's not the small print though it's a legal contract that people agree to - as well as being one if the major conditions in the policy it's usually pointed out as an important condition in the policy summary and brokers should be pointing it out as well. Insurers could do more to make their wordings clear and try and help people understand them but being honest if people dont read the overview documenta are they going to read other additional docs? If someone has insured for x amount, paid a premium based on x amount, then insurers will pay claims based on x amount, not more because someone didn't realise or properly read their documents.

I’m an LA (not property though) and we’ve been getting regular company wide emails about the exponential increase in materials and labour since Spring 2020. The adjuster who came out to you was right. I would be taking this up with your broker. My property colleagues have been doing regular pieces on LinkedIn and also email drops to work contacts, including brokers, publicising this since the first lockdown. The rebuild amount might have been specified by you, but they should have warned all their clients about the increase in costs and given you the chance to factor this in- it’s literally the type of advice you’re paying a broker a premium for. I would go back to your broker and advise them of the adjuster’s position and ask them how they intend to resolve it.