The Central Bank of Ireland warned homeowners last year to avoid underinsuring their properties. Construction price inflation was so high, there was a real fear that homeowners unlucky enough to have to claim would find themselves severely out of pocket, having blithely renewed their cover each year without adjusting the sum insured.
However, it seems that insurers have to some extent taken the onus off homeowners, with many adjusting the sums insured — without being asked — for a more accurate reflection of current rebuild costs and presenting the resulting higher premium to customers at renewal time. This is fine as long as customers are happy that the new policy fairly captures the cost of rebuilding.
Either way, home insurance premiums have been markedly higher this year. According to the Central Statistics Office, prices increased by an average of 7.9 per cent over the 12 months to September this year. In practice, however, many premiums have gone up by far more.
One homeowner paid a premium of €414 for their buildings and contents cover last year. Before taking out that policy, they consulted the rebuild cost estimates from the Society of Chartered Surveyors Ireland (SCSI) and increased the buildings sum insured to €350,000, as well as €30,000 for contents.
When they received their renewal notice two weeks ago, the premium was €551, an increase of about 33 per cent. Their insurer had raised their buildings sum to €423,500, up 21 per cent, and their contents sum to €31,500, an increase of 5 per cent.
Advertisement
In an accompanying note, Axa, the underwriter, said: “To help protect you against the risk of underinsurance, we adjust the buildings sum insured in line with the latest house rebuilding guide from the SCSI at time of renewal. We have therefore increased the value of your buildings sum insured by 21 per cent.”
• Are house prices going to drop in Ireland? Six experts on what’s next
Another homeowner said their renewal quote in September had risen 54 per cent on the previous year. Yet another said theirs was up 30 per cent; they believed the insurer had added “way too much” to their rebuild cost, however, so they reduced it and the premium came down accordingly.
Aside from adjusting to match up with SCSI rebuilding estimates, it is standard practice for insurers to apply indexation; that is, increasing the sum you have insured in line with inflation. Should prices subsequently fall, they do not take reverse action. In information from Bank of Ireland about its home insurance offerings, for example, it says that if it raises the buildings sum insured only for the index to fall later, it will not revise it back down unless the customer requests it.
Alex Naylor, chief marketing officer of Chill, says there has been a “noticeable slowdown” in the rate of increases since May. He adds that many factors play a part in determining premiums, including “the rate of claims, the increasing volume of bad weather events and other inflationary costs”. However, another big influence is the “sheer number of households who have provided higher estimates on the ‘sum insured’ value of their properties”, presumably on the back of Central Bank warnings.
Underinsurance
Advertisement
Underinsurance — where people insure their homes for less than what it would cost to rebuild them — has become increasingly common in recent years in tandem with construction price inflation. According to the Central Bank, while just 6.5 per cent of paid claims were underinsured in 2017, that proportion had jumped to 16.5 per cent by 2021.
If you insured a building for €300,000 and then the worst happened, and the actual rebuild cost was €400,000, you would have to make up the shortfall yourself. Even if you made a partial claim, underinsurance could come back to bite you via the “average clause”. Using the above example, say there was limited damage to your home but you needed to spend €100,000 to repair it. As you were essentially 25 per cent underinsured, you would receive €75,000 at most.
• Ireland Property Price Guide 2023: space and sea views attract wealthy buyers
Depending on your insurer, however, allowances may be made for a certain degree of underinsurance while still letting you claim the full amount. “Some insurers may not apply the average clause if the sum insured is within a certain percentage of what it should be,” Insurance Ireland, the industry trade body, said.
In the case of the homeowner whose premium jumped by 33 per cent, for example, the underwriter noted that when a customer was underinsured by up to 15 per cent, it would not reduce a claims payment. It had previously allowed up to 21 per cent underinsurance but reduced it this year. Either way, insurers have been telling customers to review their sums insured at least annually to make sure they are appropriate.
Advertisement
A spokesman for the SCSI stresses that while the increases in rebuild costs are considerable, it “does not necessarily mean the premium will increase significantly”, particularly if homeowners shop around. “The really important takeaway is for homeowners to set aside some time — it should only take five or ten minutes if using the SCSI House Rebuild Calculator, which is free — to get an accurate reinstatement figure and ensure their insurance is up to date,” he says.
Estimating rebuild costs
The cost to rebuild is not the same as the market value of your home. For an educated guess as to how much it would cost to rebuild your house, consult the calculator on the SCSI website (scsi.ie). At time of writing it is being updated to reflect 2023 prices.
Aimed at estate-type terraces, semis, detached houses and bungalows, it does not cover one-off, unusual or period homes. Its estimate is the absolute minimum and will not cover extras such as expensive or custom-made fittings, extensions or upgraded outbuildings.
If you have already renewed but are concerned that you are underinsured, or indeed overinsured, you could change the amounts at any time. So once you have done your research as to how much cover you require, contact your insurer to find out the cost of your premium.
If you have a non-standard home, or just want to be more definite about your rebuild estimate, you can pay to have a “reinstatement cost assessment” carried out. This will give you a comprehensive outline of the costs to rebuild and will include elements such as demolition, foundations, labour and materials, professional and planning fees and so on, as well as any unusual works that would need doing.
Advertisement
You can get a chartered quantity surveyor to do this assessment for you. For a list of those working in your area, see the “find an expert” section of the SCSI website.
Contents
For an accurate gauge of the replacement cost of your home’s contents, you must physically go from room to room and write down estimates. You can find some handy lists online to make this job easier — for example, both RSA and Chill have home contents calculators on their sites.
Valuation will be down to your own judgment. Just make sure you go with the replacement cost, not the original cost. You do not need to include “unmovable” elements like flooring or light fittings, as these should come under the buildings part of your policy, but you do need to include carpets, curtains and so on.
