New survey data from Rebuild Cost Assessment has revealed that 80% of UK properties are underinsured. Potentially even more worrying is the fact that those properties that are underinsured are only covered for 68% of their total value. Property insurance now affects over £340bn of UK property, leaving tens of thousands of property owners at risk of significant financial issues in the event of a claim.
Property underinsurance occurs when the amount of cover provided for contents insurance, buildings insurance, and rebuild limits are lower than they should be. For example, a property is insured for £350,000 when the actual cover required is £500,000. Rebuild costs, in particular – the total cost of rebuilding a property should it be destroyed – are often underestimated, which can lead to disastrous consequences in the event of a claim.
Property underinsurance has been a growing problem in the UK for a number of years – it grew by 3% between 2021 and 2022 alone*. The rising tide of underinsurance is a problem as it exposes property owners financially in the event of a claim. Why? Because insurers may decide to:
A. Invoke the ‘condition of average’ clause – this often forms part of a building’s insurance policy and allows insurers to reduce the amount they pay in line with the cover that’s been paid for. For example, an office owner has a business buildings insurance policy, and they make a claim on it following a winter storm. The repair and rebuild work totals £150,000, but because the insurer deems the property to be underinsured by 34%, they only pay £99,000, leaving the owner to find the remaining £51,000.
B. Void the policy – if the underinsurance gap is wide enough, it’s possible that an insurer could void the policy. The Insurance Act of 2015 states that a client must give a ‘fair presentation’ of the facts, and that it is the property owner’s, not the insurer’s, duty to ensure that valuations are correct. If they are not, they can refuse to make a payment. While instances of policy voiding are uncommon, they are not unheard of, and the consequences could be devastating.
There are several reasons why so many UK properties are underinsured, these include:
The British Insurance Brokers Association has highlighted the need for more awareness of underinsurance and the need for property owners to get some impartial advice. If you’re worried about property underinsurance, contact Jensten Insurance Brokers by calling 0808 239 3350. Our team of insurance specialists will be happy to offer you a review of your cover.
*Rebuild Cost Assessment figures.
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