It’s hard to keep up with the insurance market.
his month alone, warnings have been issued for homeowners that they are paying far too much for their house cover, while others warn of gross under-insurance due to construction inflation.
Both can be true at the same time, and it’s one of those areas where consumers are more likely to blindly renew their policy when it comes up, without examining whether in fact they have the correct levels of cover for their home.
House insurance is mandatory when you have a mortgage; the lender needs to be sure that in the event of a disaster their asset is protected. But it should be maintained, even after your mortgage is over, and certainly with the increase in extreme weather events we are experiencing due to climate change, everything from frozen pipes in winter to flooding and wild fires in summer all need to be protected against.
The Central Bank warns inertia-ridden consumers that anyone renewing with the same insurance provider year after year could be paying a third more than active switchers. Unlike the motor insurance market, which came under severe scrutiny from Government and consumer advocates which forced them to ban practices like ‘price walking’ – charging loyal customers more than new ones – the home insurance market relies on your apathy.
Jonathan Hehir, of Insuremyhouse.ie says research reveals vastly different premium levels for identical properties.
“We took three typical home insurance cases on three-bed, semi-detached properties in Dublin, Cork, and Galway. We were able to get quotes from 15 insurers and the price differences were staggering,” he says.
“Using a sample quote for building cover of €300,000, and €50,000 contents cover the highest quote for the Dublin-based property (€585) was almost double the lowest quote (€285.08) – so a homeowner could end up spending twice as much as they need to,” he says.
Outside Dublin, he found the differentials slightly lower, but still significant with a 71pc difference between the lowest and highest quote in Cork, and a 77pc difference in Galway.
“The key to the best value is making sure you get a wide number of quotes; don’t limit yourself to just one or two from the main providers,” he says.
Inflation is a huge issue everywhere, but construction inflation runs even higher than cost of living, as anybody who has tried to get a price off a builder knows. This has the effect of making repairs more expensive in the event that your property is damaged. As a result, you could already be significantly under-insured, just by renewing the same policy you had last year.
According to insurer Allianz, cement is up 11pc, plaster by 30pc and timber by a whopping 64pc. Labour costs have also increased.
Not keeping up with inflation may mean you don’t have enough cover if you suffer an adverse event. It’s a false economy to try and manage premiums by under-insurance. By all means, take the risk on contents or individual items, with a higher excess, but bricks and mortar really should be insured fully.
However, the cost of rebuilding is only one problem with under-insuring. A pesky clause in many contracts means that all settlements could be reduced if you haven’t proper cover. This is called the ‘average clause’ and comes as a shock when you claim for something relatively minor such as a damaged roof or frozen pipe.
So, for instance, says Mr Hehir, if your overall ‘buildings’ cover is €150,000 but your house rebuild costs would actually be €200,000, it’s clear you have a shortfall of 25pc. “But this shortfall can be applied to all claims, not just the big ones with many insurers. You could be left with just 75pc of a claim for theft, or a leak, for instance.
If the homeowner’s building sum insured is less than the full rebuild cost at the time of the loss or damage, claims settlements may be reduced
William Tilley, Senior Associate at Ivor Fitzpatrick & Co Solicitors, explains the legal principle. “If the homeowner’s building sum insured is less than the full rebuild cost at the time of the loss or damage, claims settlements may be reduced, and the homeowner will be responsible for the shortfall of the loss. To avoid under-insuring, it is sensible for the homeowner to review their buildings cover in order to ensure that the estimate provided when purchasing or renewing their policy is accurate and up to date.”
The SCSI’s Edward McAuley says the dramatic rise in construction inflation is at a tipping point due to Covid, supply chain delays and the situation in Ukraine.
“Homeowners should consider increasing their reinstatement cover to deal with construction inflation. They should also enquire with their insurance provider about indexation which automatically increases the amount of buildings and contents cover when they renew their policy each year. It can help homeowners avoid being under-insured as it increases the cover they have in line with general inflation.”
The SCSI will update its home rebuilding guide next month. See below for ways to save on premiums.
Cutting home insurance costs
Getting a reduction in your premium while maintaining proper cover is a balancing act. Here are some tips:
- Check if your policy has indexation built in. This means you’re less likely to be under-insured.
- Calculate your rebuild costs. This is not the same as the value of your house, since you already have the foundation structure. Use the rebuild guide on SCSI.ie or your insurer’s website.
- Check whether your insurer provides discounts for bundling your home, motor, and any other insurance policies, and whether there is any benefit to adding a spouse to your insurance package. This may allow you to save on your insurance policy significantly.
- Most insurers offer discounts for people with alarms and/or monitored alarm systems, so if you have one of these do check that your provider is aware as a monitored alarm could reduce premiums by up to 25pc. Securing your home also extends to ‘damage proofing’ your home – consider adding storm shutters, or reinforcing your roof if you live in an exposed area, or modernising your heating, plumbing, and electrical systems to reduce the risk of fire and water damage.
- Review the value of your possessions periodically. Some items may no longer be as valuable as they were years ago, or have been sold or passed on. New items may need to be added.
- Increasing the excess on your policy can lower your premium, but you take a higher share of every claim.