Average Price Clause On Subsidence Claim - Ombudsman Advice

muleskinner

Hi,

A property I own suffered subsidence damage about two years ago. This was promptly reported to my insurers.

After an interminable series of delays they have recently informed me that the damage is covered by my policy but, in their opinion, the property is under-insured by approx 20% and that they are going to apply the 'Average Price Clause' in the policy which means I will have to cover 20% of the costs.

I have two key problems with this..

1. The reinstatement cost I gave when the policy was taken out was based on the opinion of a qualified surveyor. I have maintained the policy for eight years and the insurer has raised the reinstatement costs each year, presumably to keep pace with market adjustments and inflation. I have never been asked to reassess the reinstatement cost and I haven't made any additions to the property, therefore any under-insurance would seem to be the fault of the insurer for not raising the reinstatement cost effectively.

2. The total cost of the reparations is estimated to be about £8.5k, however I am also expected to cover 20% of an additional (estimated) £5k 'Claims Management Fees' plus approximately £2k of fees for investigative work which would have had to have been carried out whether the damage was covered or not. This seems completely unreasonable.

I have written to my insurers complaints department twice and have received zero response. I also made a complaint to the claims handler, this has been responded to but it only covers the delays and makes no reference to the points above as according to them they don't have the authority to deal with them and I should contact the insurer directly.       

So, it looks like I'm taking this to the ombudsman. Never done that before though I do have a fair amount of experience with the Small Claims Courts and Tribunals. I just wondered if anyone had any specific advice / experience that would relate to this claim?
cheers

DullGreyGuy

First of all, ready your policybook. Averaging is a common clause in insurance but your booklet will describe exactly how it applies in this policy. 

In principle its as you say, if you insure your stuff for 20% less than what its really worth then the insurer will reduce any claims payout by the same percentage. 

Secondly read your last renewal notice, almost certainly it instructs you to review the schedule and policy documents and advise them of any errors. So your claim its your insurers fault that you are under insured is unlikely to be a get out of jail free card. As you say, insurers do index link values to attempt to help them keep them at the right level but the problem is indexes are averages and by definition some will be escalating faster and others slower. 

Have you tried https://calculator.bcis.co.uk/ to see what the rebuild value is compared to your declared value?

There does seem reasonable grounds for contesting any pre-claim acceptance costs being included in the averaging but claims/repair management and subsequent monitoring would be legitimately included

BarelySentientAI

muleskinner said:

1.  I have never been asked to reassess the reinstatement cost and I haven't made any additions to the property, therefore any under-insurance would seem to be the fault of the insurer for not raising the reinstatement cost effectively.

You probably have been asked, at every renewal, because there is almost always a note suggesting that you should check the policy details on the renewal before accepting and inform the insurer if any are incorrect 

muleskinner said:

 
2. The total cost of the reparations is estimated to be about £8.5k, however I am also expected to cover 20% of an additional (estimated) £5k 'Claims Management Fees' plus approximately £2k of fees for investigative work which would have had to have been carried out whether the damage was covered or not. This seems completely unreasonable.

Which is the standard method for applying underinsured values, backed up by several previous ombudsman decisions (although unlike court these don't officially set precedent).

Your insurance premium was not just to cover the repairs, it was also to cover the fees, admin, management and everything else.  You (theoretically) benefitted from a lower premium by declaring a lower value, so logically it should apply to everything covered by that premium.

muleskinner

Hi,

Thanks for this. I will see if I can find the renewal notice, it's all done online.

Yes, I've looked at that calculator. I'm not really disputing what they think the reinstatement cost should be (the value they give appears to be based on that calculator), though that calculator does at provide a fairly large range and the amount I was insured for would have been at the bottom of that range.

I have seen previous Ombudsman decisions where the average price deduction is limited to the percentage by which the premium would have changed had the property been insured for the 'correct' amount which is often significantly less than the percentage difference in valuation, so I think that will be my last line of appeal.

cheers 

Zbubuman

Whilst insurers will index link a policy to try to keep the sum insured adequate. The rate applied might not always be fully adequate and over a long period of years you would usually end up with gap between the index linked figure and the actual re-build value. 

Insurers would usually use a percentage given by RICS and their own claims/underwriting experience to workout the percentage. However as stated there might be a gap which will only get bigger as the years go by. Best thing to do is to have a reinstatement cost assessment done every 3 to 5 years. 

With regards to your claim, check the re-build value on the BCIS calculator to see if the figure you are given is closer to your declared value, or if it is closer to what the loss adjuster is stating.  If closer to your declared value, you can present this info to insurers/adjuster and request for an independent surveyor to assess the re-build value. Will depend on insurers, but some of them might agree to pay for this additional survey to resolve the dispute, otherwise you will have to pay out of your own pocket.  BEWARE that it is a double edged sword though, you might end up with a surveyor who values it at a higher figure than the adjuster is calculating. 

muleskinner

Thanks for all the input.

Part of the problem (for me) here is that the claim was taken out over eighteen months before I was informed about the 'Average Price Clause', so checking what the reinstatement value is now isn't really accurate, it's bound to be considerably higher.  

As far as the 'Claims Handling Charges' my point is more that they are excessive rather than they should not be included. £5k on an £8.5k job is way, way beyond anything that I've ever had judged as a reasonable 'management fee'. Surely there should be some transparency as to what these cover? I'd be willing to bet, based on the detailed response I had to my claim regarding the delays, that a large chunk of the time spent 'claims handling' is in fact the claims handler chasing the insurer / underwriter for files that they lost.

cheers

dunstonh

Where you use a sum insured policy rather than an automatic "up-to" policy, some insurers will often honour the difference where they have been supplied a copy of the surveyor's report at the outset, and for the duration you remain with them.   Did you supply that at the outset?  Was it a high quality valuation (such as a surveyors report) or a lower quality valuation such as a home buyers report or mortgage valuation? 
You should reference the fact that you used a professional surveyor to get the sum insured required, if it was a proper report.   
Was the sum insured difference significant? If not, you could point out that valuations are largely opinions based on information, and if your survey was comprehensive, that surveyor reviewed the property more thoroughly than the insurers.

DullGreyGuy

muleskinner said:

Hi,

Thanks for this. I will see if I can find the renewal notice, it's all done online.

Yes, I've looked at that calculator. I'm not really disputing what they think the reinstatement cost should be (the value they give appears to be based on that calculator), though that calculator does at provide a fairly large range and the amount I was insured for would have been at the bottom of that range.

I have seen previous Ombudsman decisions where the average price deduction is limited to the percentage by which the premium would have changed had the property been insured for the 'correct' amount which is often significantly less than the percentage difference in valuation, so I think that will be my last line of appeal.

cheers 

Thats the rules under CIDRA rather than averaging, that if they would have insured you had you declared the correct value then claims are reduced by the delta in premiums. There are post CIDRA decisions by the ombudsman that averaging is still a fair mechanism as long as the terms of the policy are adequate, if the contract had no averaging clause then CIDRA could still be applied as its statute 

muleskinner said:

Thanks for all the input.

Part of the problem (for me) here is that the claim was taken out over eighteen months before I was informed about the 'Average Price Clause', so checking what the reinstatement value is now isn't really accurate, it's bound to be considerably higher.  

As far as the 'Claims Handling Charges' my point is more that they are excessive rather than they should not be included. £5k on an £8.5k job is way, way beyond anything that I've ever had judged as a reasonable 'management fee'. Surely there should be some transparency as to what these cover? I'd be willing to bet, based on the detailed response I had to my claim regarding the delays, that a large chunk of the time spent 'claims handling' is in fact the claims handler chasing the insurer / underwriter for files that they lost.

cheers

The price should be considered against the policy that was in force the date the claim was made. The Averaging clause you'll have been told about each year at purchase/renewal when you are sent your policy book and told to read it. 

Claims handling charges typically will be the loss adjustor (as their role as a project manager) and structural engineer, the later in particular are expensive resources. The former is often a proportional charge of the claim and the later on an hourly rate. 

muleskinner

dunstonh said:

Where you use a sum insured policy rather than an automatic "up-to" policy, some insurers will often honour the difference where they have been supplied a copy of the surveyor's report at the outset, and for the duration you remain with them.   Did you supply that at the outset?  Was it a high quality valuation (such as a surveyors report) or a lower quality valuation such as a home buyers report or mortgage valuation? 


You should reference the fact that you used a professional surveyor to get the sum insured required, if it was a proper report.

It was a homebuyers report, not a full survey, though the guy was RICS qualified.

Was the sum insured difference significant? If not, you could point out that valuations are largely opinions based on information, and if your survey was comprehensive, that surveyor reviewed the property more thoroughly than the insurers.

The difference is £20k. Falls well within the boundaries given on the BICS calculator. The insurers didn't do any kind of survey as far as I can see, their figures are just from the calculator. Claims handler sent me a screengrab! cheers