9th September 2022 -
We have all heard about rising construction costs and inflationary pressure in the Irish economy. Our Blog today is about how these inflationary factors can affect your insurance and give you some top tips in ensuring you have the right insurance in place. As a broker we see many new clients with inadequate insurance cover and it's our job to advise and hopefully in this blog, debunk the topic! Whether you be a home owner or commercial entitity, it always makes sense to understand your insurance sums against the costs out there in the market.
The Backdrop : The ESRI say that Irish inflation will be 8.5% or higher in the next year. The construction industry is facing increased materials and labour costs, making their overheads higher and this means rebuilding costs more. In a recent article in the Irish Independent, The Society of Chartered Surveyors (SCSI) have reported that house rebuilding costs have increased by up to 23% over the last five years. The SCSI have provided the following guide rebuilding costs based on 2021 cost levels - €218,000 to rebuild the average semi-detached house with three-bedrooms in Dublin.
Many insurance household or property policies do not automatically index link, and it the job of the property owner in consultation with their insurance broker to establish the right sum for your buildings and contents.
Explain Rebuild Costs & Under Insurance?
The Market Value is the value of your home and the Rebuild Value (or Buildings Sum Insured) is the sum if it were completely destroyed and needed to be rebuilt from scratch at todays prices. These two values are never the same. Underinsurance occurs when you insure your buildings and contents for less than the amount it will cost to rebuild or replace it. Clients often say things like "well insuring it for 200k is fine what is the worst that can happen?". That's maybe ok if the rebuild value is under 200k, but they are thinking of a scenario of a partial loss, such as a burst pipe claim, and think its a top line budget to spend in the event of a claim. That's not how it works unfortunately.
Where a customer is underinsured, there can be several consequences. The claims payments or settlement may be reduced and the ‘average’ clause applied. This means if the customer doesn’t have adequate sums insured , it can reduce the settlement by the same percentage by which the asset is underinsured. For example, if your house was insured for €150,000. The insurer’s assessment, based on guidance from the Society of Chartered Surveyors Ireland and industry knowledge, is that the rebuilding cost is actually €200,000. Therefore, you were underinsured by €50,000, which is 25% of the estimated rebuilding cost. The insurer will proceed to handle the claim on the basis that they will pay for 75% of its cost and you will pay for the remainder.
So now we understand what Underinsurance is, and know that rebuild costs are at least 20% higher since you last reviewed your insurance. So what next?
Our Top Tips!
Remember you are in the best position to understand the size and finish of your home, so start with these steps and you will avoid the pitfalls.
1. House Rebuild Calculator:
The Society of Chartered Surveyors Ireland have a calculator to help consumers understand this gap cost. Input your square feet, location and details like outbuildings, special finishes, walls and fences (many people forget the cost of these!). It will then calculate the rebuild cost and provide an estimate. It is an estimate but a very enlightening one!
2. Understand your policy details and limits
Have your schedule on file and always ask your broker to review it with you each year. It is important that you are clear on the detail of your Home insurance policy and any exclusions (what’s not covered), inclusions (what’s covered), maximum claim limits (how much you get back if you claim) and any other terms or conditions.
3. Think about recent property improvements
Have you extended, renovated the interior or improved the garden? If you’ve just put in a new kitchen or bathroom, or maybe a major extension, your existing cover may no longer be enough. Check your cover and increase the amount you’re insured for to take into account the latest additions.
4. Review the value of your contents
Contents should be insured for their new replacement value and the value should be sufficient to cover all of your contents. It’s a good idea to walk through each room in your home, listing every item they can see and calculating its value. Remember that items stored out of sight are often at risk of being forgotten. To be sure of full claims settlements it is essential to declare accurate and up-to-date contents values.
5. All Risks
In Brady Insurance we are big fans of All Risks insurance and have seen so many claims for jewellery in the past. If you have heirlooms, rings or watches to us it is a no-brainer to insure them. You can also cover bicycles, cameras, laptops under this section, whether you are at home or on the move.
Dont worry, with a broker shopping around you can be sure that even with a review of your policy you will get the best value available and will have the comfort of knowing it is all in order and your cover is 100% right.
For advice on your cover, call our broker team on 071 9620193.