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Property Underinsurance and claim settlements.

We have seen a dramatic rise in claims to buildings over the past 18-months and a link to the current global pandemic cannot be ignored.

In addition to the increase in the number of claims I can also report an increase in the number of properties that are being under-insured, resulting in “average” being applied to any claim settlement (more about average later in this article).

A 2019 survey of 2000 properties by a leading insurance valuations company found that 85% were under insured and that there is an increased risk of under-insurance if the property has never been professionally valued.

Looking at several case studies, we’ve identified the most common ways to spot ‘the likely suspects’ of where underinsurance is sure to be found.

Listed buildings should be professionally valued at least every 3-year, often the cost of reinstatement can exceed the re-sale value of the property. Non-listed premises should be revalued at least every 5-years.

Consideration should be given to non-standard building materials or Eco-buildings; these can dramatically alter any re-building cost. Permanent high-tech fixtures and fittings, such as audio or visual systems should also be taken into account, unique or ornate external features can be expensive to replicate or repair.

Many pre 1920’s buildings will include period features for example staircases or windows; these should be taken into account for full reinstatement valuation.

Property extensions are often valued in isolation and as a cost to build rather than the impact to the overall property value.

The building location could increase the cost of site clearance or rebuilding, difficult to access areas or town centre locations could involve additional expenditure.

The re-build value of a building may not take into account other features of the property, such as car-parks or pavements.

Index linking is an average, different building in different parts of the country will have different reinstatement costs.

Finally you should remember that the reinstatement cost of any property should not be limited to just the re-build value. Other costs, including; site clearance and professional fees should also be included in any calculation to avoid underinsurance.

In the event that the property is under insured, the insurer can reserve the right to apply “average”, meaning that if you only insured 75% of the buildings value they will only pay 75% of the insured claim, regardless of whether that claim falls within the overall limit or not.

Alternative if the insurer believes that the under-insurance is an innocent over-sight they might recalculate the original premium asking you to pay the difference before settling any claim.

The worst case scenario is that the increased buildings insurance costs fall outside the insurers “appetite” and they then “null & void” your policy backdating cancellation to inception and refunding any paid premiums.

The costs of hiring a professional surveyor are not cheap, although neither is the result of under insurance, but I can see why this may be a barrier to some. Most take a figure from purchase or change of ownership and then rely on indexation calculations to keep them on track, however like Chinese whispers this will get distorted over time.

There are some very cost effective desk-top survey’s that can be purchased and whilst not as thorough as an on-site surveyor, it will give you a much better start point and demonstrate that you have engaged with a professional service before placing the risk on cover.

Under-insurance as a genuine mistake will more a more elongated claim process, under-insurance as an attempt to save money on your insurance premium is a false economy.

Regardless of the premium you pay; £250 or £2,500, if you are going to take the pain to pay, don’t double the pain by not getting your claim paid.

Ashbourne Insurance is a third generation family-run general, independent insurance broker, established over 40-years, authorised and regulation by the Financial Conduct Authority.

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