Underinsurance – September’s Hot Topic
What’s hot in insurance?
This month, we’ve caught up with our in-house property expert, Callum, to find out what’s topical in property insurance.
Here he tells us what he is seeing in the market, what his client’s top questions and concerns are, and what advice he’s giving this month.
So, whether you have a handful of buy-to-let properties, own your own home or business premises, or have a commercial property portfolio, this blog is for you.
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1. What’s the biggest concern in the property insurance market right now, and how are you helping clients stay ahead of it?
Underinsurance!
Being honest, underinsurance is a huge concern for clients and insurers, especially with the rising costs of materials.
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Purchase Price
There are several factors that can lead to underinsurance. One is the fact that some individuals use their purchase price as a figure for their building’s reinstatement cost – the estimated price to rebuild their property after damage or destruction.
This issue here is that the cost to purchase and rebuild your property can differ massively.
I am helping clients stay ahead of this by explaining what’s at risk when you use your purchase price in this way.
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‘Guesstimates’
Plucking a figure out of the air, or ‘Guesstimating’, is also another problem that we see and hear a lot about. In most instances, it’s wrong! It can lead to all kinds of issues, not least insurers refusing to payout a claim should something go wrong.
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Average Clause
At Prosura, as insurance brokers, we take the time to explain what’s important, relevant and right; however, those taking out insurance also have a responsibility to understand key aspects of their policy. One common feature to be aware of and understand is the ‘Average Clause’. Better know as “underinsurance”.
As a brokerage, we are on a mission to ensure that the average clause on insurance is understood. You can find out more about the average clause this way here.
Let’s explain, using an example!
The value of your home is £500k, and you insure it for £250k, so you have underinsured by 50%. You then have a fire that causes £50k worth of damage. The insurer will only pay 50% of the claim, so they received £25k; the rest will need to be covered by the client themselves. Put simply, the insurer will only pay the proportion of the loss for the amount of premium that the client has paid.
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Rebuild Cost Assessment
In addition to understanding the Average Clause, what I am recommending to clients is the need for a rebuild cost assessment. This will help them to get an accurate rebuild cost of their property and, in turn, the right insurance. This is where the rebuild cost has been calculated by a RICS qualified surveyor, or QS.
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2. What is the most question(s) clients ask you, and why do you think it keeps coming up?
The most popular questions in property insurance are definitely linked to underinsurance.
Many clients ask for our thoughts on the building sum insured and reinstatement value. Unfortunately, we cannot give any advice on this as we are not surveyors.
There is a lot of education needed around this, especially when we consider that rebuild valuations on properties (particularly residential properties) are not that common. So, most clients don’t know what their building reinstatement cost is.
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3. How is the property market changing how people insure their assets?
I would say that due to the current economic climate, clients want to use insurance as a risk transfer mechanism to protect their assets.
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4. What’s one thing do you wish every landlord or developer, or property owner, better understood about insurance?
Can I say rebuild cost and underinsurance again?
I would also say, if any work is being completed at the property, we need to know and get the insurer’s approval, as this could impact a claim.
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Underinsurance – Find Out More
You can find out more about underinsurance here.
Alternatively, give Callum a call by using the details here.
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Let’s Talk
Find out more about our extensive range of products here and speak to the team for support with all of your insurance needs, we protect your most valuable assets.
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About Prosura
Prosura is a business and lifestyle insurance broker that simplifies the complexities of insurance.
Prosura is more than just an insurance broker. Firstly, they are an experienced team. Secondly, they combine the highest levels of customer service and advice with finding the right, cost effective policy. Ultimately, they protect your most valuable assets.
Operating locally and throughout the UK, Prosura supports businesses of all sizes and sectors including manufacturing, distribution, property, and leisure and hospitality.
Most importantly, Prosura tailors its offering to meet both business and personal needs. In addition, to provide further value for its customers, Prosura also includes its free ‘lawyer in a box’, a digital legal service for customers.
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