Whilst an insurance policy is a legally binding contract between the insurer and a premium paying Policyholder, it is also a promise to pay for loss or damage which results from specific unforeseen or uncontrollable events, known as Insured Perils. For example, damage resulting from storm, flood, fire, impact and subsidence.
Unlike motor vehicle insurance, which is a mandatory legal requirement for anyone driving a car on the roads, Buildings Insurance for your home or property whilst not a legal requirement is essential and also mandatory for anyone with a mortgage.
Indeed, for most people their home and property will be their most important and valuable asset which they will own in their lifetime and it is therefore very important to protect your investment.
If you think about it, most of us not only store at home our treasured and valuable possessions such as clothes, furniture, computers, TV’s and the like we also spend significant amounts of our money on decorating and improving our homes with expensive new bathrooms and kitchens. Sadly it doesn’t take much in the way of water, fire and smoke to ruin everything often resulting in houses becoming uninhabitable.
Water damage is by far the most costly insured peril which insurers pay out for as piped pressurised water is something we find above, below and around us in the home on a 24/7 basis. Thus a water damage disaster can strike at any time whereas storm damage is weather dependent and owing to improved awareness and alarms fire is often contained in the area where it started.
How much home insurance cover do you need to be adequately covered?
With contents insurance this is usually straight forward where it is sensible to buy sufficient cover to replace all of your contents were they lost in a catastrophe, making sure that your insurer is specifically aware of individual high value items (where they will usually charge more) such as jewelry or works of art etc.
The tricky part is working out the replacement value of all your stuff and to make this easier it is becoming common for insurers to provide an upper limit of say £75,000. However, working out the correct level of buildings insurance cover is not so easy as this is dependent on many factors such as the age and constructional type of the property, its location and size whilst taking into account additional costs of fixtures and fittings such as bathrooms and kitchens, patios, driveways, garden walls etc.
Essentially anything that is attached to the land/property and cannot easily be removed should be regarded as a buildings item and thus needs to be accounted for when working out a suitable sum to be insured. The other issue which often confounds many people is that the sum insured should reflect the cost of demolishing and rebuilding the property in the event of a total loss and should not reflect the perceived market value of the property as the insurance policy will only ever pay out the cost to rebuild the property which for many home owners is likely to be much less than the market value.
Taking an example of a typical London house with a market value of say £750,000, insured for £1m but would only cost £400,000 to demolish and rebuild, no prizes for guessing that an insurer would only be liable to pay the £400,000 in the event of a total loss.
It is therefore important that homeowners have an adequate sum insured based on the estimated rebuilding costs of the property and are not paying inflated premiums based on perceived market value. Notwithstanding the above, most insurers normally allow some flexibility when calculating rebuilding costs as most homeowners cannot be expected to easily and accurately assess the demolition and rebuilding costs of their home taking into account inflationary and regional factors. So and as with contents insurance, many insurers now provide blanket building sum insured levels of £500,000 and £1m depending on property type and size to make this issue easier to accommodate.
However, it still might pay many to work on a specific sum insured basis if a property would cost substantially less to rebuild than a blanket upper limit which may well carry an enhanced premium. Homeowners should therefore carefully consider the limits of their insurance cover and discuss this with their insurers and they can also obtain helpful demolition and rebuilding costs advice from the likes of The Royal Institution of Chartered Surveyors.
Like most businesses, Insurance companies exist to make a profit and return for their shareholders and investors. Claims are by far their biggest financial cost and it should come as no surprise insurers will always be looking for ways to reduce and minimise their claims costs.
Most insurers employ their own claims handlers and/or loss adjusters to settle claims. Neither are independent and impartial and are often incentivised to decline uncertain claims and/or minimise claim settlement costs even if this appears completely unfair and unreasonable to the insured party.
Most claims are subject to a policy excess. This is the amount which is deducted from a claim and is intended to be the Policyholders contribution towards the costs of the claim. The excess amount is usually governed by the claims type i.e. water damage claims usually have a minimum £250 excess. Excess levels can often be increased or reduced by the payment of increased premiums negotiated at the commencement of the policy the intention being to encourage Policyholders to accept more risk in the hope they will be more careful (and thus reduce or dissuade claims being made) in return for a lower premium.
Claims come in all shapes and sizes. The intention of an insurance policy is to provide cover for loss and damage arising from an unforeseen uncontrollable accident such as a storm.
However, this basic understanding becomes blurred in more complex situations such as water damage resulting from pipework installed by say an inexperienced plumber where it could be argued that the incident was foreseeable and the result of [the plumbers] negligence and thus not an accident and therefore would not have occurred had a competent plumber been engaged.
However, unless the insurer can establish a clear case of negligence and/or some form of deliberate act on the part of the insured party, in such situations the insurer would be expected to accept and deal with the claim. However, in these claim situations insurers are able to exercise their rights of subrogation [to adopt the Policyholders legal position] and pursue a recovery of the claim costs from a negligent third party.
When exercising their rights of subrogation, an insurer is able to pursue their insured costs but they must also allow their Policyholders to include and/or pursue their uninsured costs such as the policy excess as part of the claim against the third party.
As with all walks of life, things can and often do go wrong in the insurance world especially when it comes to claims which after all is the only real benefit an insured party can derive from their insurance contract. As mentioned above, adequacy of the sums insured becomes very important at the point of claim where insurers can and usually do look to reduce payments if the sum insured is insufficient.
This is not so much of a concern with a small claim but imagine if water leakage from tanks in the roof brought down ceilings seriously damaging your bathroom and kitchen – a 25% reduction of £1,000 claim is infinitely more manageable than a 25% reduction of a £20,000 claim. Another classic situation is when insurers accept claims only for their claims handlers and loss adjusters to say that aspects of the claim are excluded due to old age/wear and tear or had been damaged by a separate matter not covered by the policy.
Another particular loss adjuster favourite is to deny the re-decoration of a complete room in situations where say only 1 or 2 walls have been damaged.
Although statutory regulation governs much of the rules and ways insurers are supposed to operate in today’s financial services world, many insured people simply don’t have the time, inclination or wherewithal to challenge their insurers unfair claims handling practice and usually accept the meagre settlement options being offered.
Insurers are of course well aware of this and don’t usually hesitate to take advantage of a competitive claims settlement situation whenever they can.
This is where we can help where we have over 25 years of unrivalled experience of buildings insurance matters having worked with insurers and their claims handlers and loss adjusters. We, therefore, know about their often sharp and unfair practices and the effects this has on property owners who do not know where to turn for advice and have the time and energy to fight for a fair claim settlement.
Working with experienced independent experts, we are able to fight for insured people who have been unfairly treated and use our expertise and experience to get a fair and reasonable improved claim settlement.