Buildings Insurance

pararct

I have just received my renewal notice and the buildings rebuilding element is £385,000.
Property is two terraced houses with a total of 13 bedrooms (trades as a bed and breakfast) in the North of England, so is a commercial undertaking.

To be honest the figure has always been £385,000 and I think was taken from the surveyors report when I purchased the property in 2007.

Chap up the street from me made a claim in the last few Months and the loss adjuster mentioned that he should re-appraise his rebuilding costs.

I of course realise this is like asking a question on how long is a piece of string and that I will probably need a professional report to gauge what current re-building costs are but how robustly do insurers treat the rebuilding costs quoted on a policy?

Can they for example refuse to meet a flood or other damage claim simply on the basis they believe the rebuilding cost is too low?

This sounds like a great scam for insurers to be able to increase premiums at very little risk to themselves as after all how many claims are there that have to meet the entire rebuilding limit.

rudekid48

Under-insurance can be a problem in the event of a total loss. If for example you had declared the rebuild cost as 100k but in the event of a total loss the actual cost was 200k then the insurer may settle on 50% of the claim to reflect the under-insurance. There are guides on the internet to help you estimate the rebuild costs so that would be a good starting point.

I don't see where the 'scam' is that you elude to though? People are too quick to throw that term in when it is just a case of them not understanding how things work....

dacouch

Insurers are very hot on not having enough building cover, this is because it means you're not paying a premium that reflects the risk of a claim to them.

If you under Insure the Insurer will calculate the percentage you have under insured by and deduct this percentage from any claim you make. In severe cases they may void the policy and deny the claim however the first scenario is the most common.

It is vital to insure for the correct amount and especially so for a business as in the event of a large claim it could mean you going out of business. In worst case scenario if you're a sole trader you may still be liable to pay your mortgage / loan on buildings that no longer exist.

If you add building inflation at say 5% for the last six years the sum insured you should have would be circa £515000 which would leave you under insured by 25%. This would mean any claims irrespective of size would be reduced by 25%.

This does not take into account any building work you've had carried out since 2007 eg new kitchen etc etc which would make you even more under insured.

I've just used 5% as a cursory figure, the amount you're under insured by could be considerably more if building cost inflation is more.

It should be noted that building cost inflation bears no relation to normal inflation figures and is generally more than normal inflation.

I would suggest you employ the services of a surveyor to calculate the exact sum insured you need and then at each renewal increase your sum insured to take into account building cost inflation to ensure you stay abreast of it. (Surveyors will normally over estimate building costs slightly which gives you a good margin of error.

The reason Insurers apply this is so that you pay the correct sum insured to reflect the risk of a claim. If they did not people could just insure for £100k when they actually need £300k

pararct

rudekid48 wrote: »

Under-insurance can be a problem in the event of a total loss. If for example you had declared the rebuild cost as 100k but in the event of a total loss the actual cost was 200k then the insurer may settle on 50% of the claim to reflect the under-insurance. There are guides on the internet to help you estimate the rebuild costs so that would be a good starting point.

I don't see where the 'scam' is that you elude to though? People are too quick to throw that term in when it is just a case of them not understanding how things work....

How many claims are there that actually result in the entire rebuilding costs being claimed?

Not many I will wager

Perhaps I was being a bit aloof in using the word scam but as insurers are mostly owned by the big banks one can be forgiven for being a little suspicious given their behaviour of the last few years.

Anyway some very useful information and I thank the posters for their input.

dacouch

pararct wrote: »

How many claims are there that actually result in the entire rebuilding costs being claimed?

Not many I will wager

Perhaps I was being a bit aloof in using the word scam but as insurers are mostly owned by the big banks one can be forgiven for being a little suspicious given their behaviour of the last few years.

Anyway some very useful information and I thank the posters for their input.

It happens a lot more than you think, I had my first house burn down not long after I had bought it and have dealt with many many total losses for fires and other reasons you would never believe could happen.

Not that many of the Insurers are owned by banks.

If you're thinking Insurers are scamming you, it can be turned around to say you're scamming the Insurer by not paying a premium that reflects the risk to them of a claim as you've been under paying your premium since 2008.

I would also strongly recommend you take the opportunity to review your contents sums insured and your loss of rent / business interruption as the chances are you're also under insured on these.

A very large percentage of businesses never reopen after a large fire and the main reason being they do not have sufficient insurance cover.

If you're using a broker, ask them for advice / help as many will gladly help

pararct

I hope I am not being pedantic but if insurers knock down the value of a claim in line with the under insured building costs then where is their risk?

Real inflation as we know has been running far in excess of the published figure as the Government pick and choose what they measure it on and which measure they decide to use.

Is there a yardstick figure on how it affects premium % wise on increased rebuilding costs?

dacouch

pararct wrote: »

I hope I am not being pedantic but if insurers knock down the value of a claim in line with the under insured building costs then where is their risk?

Real inflation as we know has been running far in excess of the published figure as the Government pick and choose what they measure it on and which measure they decide to use.

Is there a yardstick figure on how it affects premium % wise on increased rebuilding costs?

Because the risk of a claim is shared amongst all an Insurers customers.

Whether you have a claim or not you create a risk to the Insurer for which the Insurer charge a premium in relation to your risk. Your sum insured is a major factor in the premium.

So if you under insure along with say 10% of their clients, the Insurer is collecting 10% less premium for the risk they're carrying so it's cost them money.

A building with a sum insured of £385k sum insured is less of a risk of a claim than a £515k sum insured, whether it be a small claim or a large claim.

People assume when they've not paid a claim for five years that the Insurer has made their entire premium as profit. The reality is the premiums have gone into a pot to pay all of the customers claims and cover other business costs. The profit margin for a building Insurer is probably circa 15%. If the 10% of customers who were under insured actually insured for the correct sum and paid the appropriate premium their profit margin would go up to nearer 16% or they could reduce everyone else's premium by circa 1%

rs65

pararct wrote: »

I hope I am not being pedantic but if insurers knock down the value of a claim in line with the under insured building costs then where is their risk?

A lot of small claims go through without the adequacy being checked. So they pay 100% of small claims but haven't received the true premium for the risk.