House Insurance - Null and Void on under insured

dacouch

TSx wrote: »

Just as a practical example, I dealt with the outcome of an FOS complaint last year which was very similar (although prior to Consumer Insurance Act - although it indicates how the FOS view such situations).

Policyholder took out a policy with a certain level of cover (a blanket sum, so £40k or so, with an inner limit of around £15k for valuables) and had a break in shortly afterwards. The claimed amount was about £120k, of which £80k was jewellery which had been valued recently and which they had a valuation for.

In our underwriters eyes, it was deliberate mis-representation - they policyholder was clearly aware of the value of their contents exceeding the sum insured significantly but chose to underinsure - and the risk wouldn't have been one we would have taken on if we'd have known the correct facts. They voided the policy.

Despite that, the ombudsman upheld the consumers complaint on the basis they hadn't been made completely aware of the possible consequences of under insuring (something it seems Tesco have tried, albeit badly, to do here).

On another note, as has already been pointed out, the reason they do not just pay up to the limit is because you effectively are self-insuring whatever amount you do not insure yourself. If you have £80k of contents and declare £75k, it is not for you to pick which £5k you have decided to self insure - therefore the loss is split between you and the insurance company proportionally.

In practice however - I don't know if it's standard industry working, but we have a tolerance of around 80% - if the contents is adequately insured by at least 80% then we don't take any action in respect of underinsurance (other than limiting to sum insured). In your example, if you had more than £64k of cover (with an £80k value at risk), we wouldn't apply any underinsurance to a settlement.

The decent Insurers seem to have a similar tolerance, some if within a slightly lower tolerance will pay the full claim and request the correct premium be paid. (Prior to CI act).

Out of interest how did the FOS deem you settle the under insured claim eg did they apply average to what you eventually settled?

Bearing in mind you would not have accepted the business, did the FOS deal with it as an "Innocent" non disclosure?

TSx

dacouch wrote: »

The decent Insurers seem to have a similar tolerance, some if within a slightly lower tolerance will pay the full claim and request the correct premium be paid. (Prior to CI act).

Out of interest how did the FOS deem you settle the under insured claim eg did they apply average to what you eventually settled?

Bearing in mind you would not have accepted the business, did the FOS deal with it as an "Innocent" non disclosure?

We just applied the high risk limit and paid that out in full - plus 8% interest (the FOS won't support deducting average and applying a limit). The FOS considered it innocent - I believe based on the fact there was a high risk limit so they couldn't have known that we would need to know the full value of everything including valuables even if a limit applied.

I used to see a few policies a year being voided for significant underinsurance, but I don't think we've voided any in 2013 - the FOS (I guess rightly so) take a general attitude of voidance being too harsh a penalty to apply.

edit: a slightly relevant decision from the FOS - Millennium voided policy for underinsuring valuables