Buildings Insurance

[Keithj]

It's that time of year again.
As ever, the present insurer needs to increase the premium because of the claims I have NOT made... It's the same game I have to play most years on car insurance
I started with Lark, the LPOC preferred insurer, but they became very expensive after year 1.

Moneysupermarketdotcom managed to find three possible insurers, for £310, £750, and £900+. The £310 sounds interesting: it's from HomeProtect, who tell me they are specialists in listed buildings. Does the assembled learned team have any experience of them?

 

[DJH]

We couldn't get insurance when we first bough our house as it was over 100 years old and had no electricity or plumbing. We discovered it had electricity thanks to a six inch nail in the main fuse... :roll:

We finally insured with FBD a company here rather like the NFU in the UK which are worth a try Keith, as they are more relaxed about fire and thatch etc. I used to have my Public Liability with then when I was in business as everyone else wanted £10k bottom line before turnover etc. Leadworkers have been responsible for one or two fires to major properties in the past but the NFU Mutual, even with the number risks they cover with farmers cutting metal with angle grinders next to the hay barn etc, were still the cheapest.

The insurance man came out from FBD and, because of the number of outbuildings we have suggested a Farm Multi-Peril policy which also covers the pony and donkeys getting out and causing mischief. The out buildings are covered for a lump sum with no re-building cover.

Doug

 

[Flyfisher]

Don't get me started on insurance . . . I've only just calmed down over the council tax topic!

We're with NFU and were very happy with them. Then we made a claim when the diamond in Mrs FF's engagement ring fell out and was lost. We were still very pleased with them as they processed the claim very quickly and without trouble. Then, last year, the renewal went up by about half the value of the claim!

Now, I'm not an insurance industry expert so I realise my thoughts are irrelevant, but my understanding is that if someone is unfortunate enough to make a claim, it is all the OTHER policy holders that chip in a tiny amount to pay that claim. So WHY do they increase the premium of the individual policy holders who happen to make a claim? It should all come out in the wash.

But that's contents insurance and not really about buildings insurance. But, on that subject, my bone of contention is the rebuild cost for a period property. The insurance company will tell you it's a lot more expensive than a 'normal' house (fair enough) but in my experience they won't actually help you with defining a figure - leaving you open to the risk of being under-insured (which devalues your policy in the even of a claim) or to the risk of being over-insured, which is just a waste of money.

In the case of vintage vehicles, where the 'market value' is not really well defined, I've heard that people can insure them for an agreed value. I don't know if such a thing is possible for houses. But even then there is the complication that a total loss of a period property is not necessarily the worst case in terms of cost because a partial loss might require the services of highly skilled craftsmen to recover/replace damaged original fabric.

Also, in the case of a total loss, what is the position regarding listing? We're G2*, so we'd have to deal not only with the CO but also English Heritage. Would they really insist on a replica house be built if our place was completely lost in a fire? If not, then I could probably insure it for about a quarter of the current rebuild cost.

It's all very complicated, which is another way of saying 'expensive'.

 

[Keithj]

Thank you. I've logged my enquiry with NFU Mutual in Sudbury, and wait to hear from them.

 

[JoceAndChris]

Hear hear again FF, all very well put and I share your sense of frustration entirely. I know we're under-insured, as I said the rebuild cost would be £350,000 - that seemed enough to me. But it wouldn't build a replica BC. But I wouldn't want one, and it would be impossible to make one! That seems a very odd business to me, I think the insurance should be purchase price and not rebuild cost.

Another thumbs up though for NFU and their quick dealings with a claim.

 

[Flyfisher]

I think the insurance should be purchase price and not rebuild cost.

. . . . except that the rebuild cost of our previous (1950s) house was only about 1/3rd of the market value, probably because of its location and the value of the plot. There are too many variables! :evil:

 

[Keith Bowman]

Flyfisher mentioned agreed values for vintage vehicles. Yes that is correct but it is usually necessary to have a valuation from a professional. The value usually relates to the market value/cost of replacement rather than the rebuild cost (which could be much higher) but there is usually provision for the owner to retain the wreck or burn out vehicle, which can then be rebuilt at leisure. Not sure whether this helps the discussion about house insurance though!

 

[Flyfisher]

Flyfisher mentioned agreed values for vintage vehicles. Yes that is correct but it is usually necessary to have a valuation from a professional.

That's interesting. I wonder why it is necessary? Surely the insurance company is only concerned about the agreed value, for which they will set an appropriate premium, rather than if it is an accurate figure. After all, the accuracy is at the risk of the owner and the only risk for the insurance company is the agreed value.

I'm clearly not cut out for a job in the insurance industry. :lol:

 

[Keith Bowman]

Flyfisher mentioned agreed values for vintage vehicles. Yes that is correct but it is usually necessary to have a valuation from a professional.

That's interesting. I wonder why it is necessary? Surely the insurance company is only concerned about the agreed value, for which they will set an appropriate premium, rather than if it is an accurate figure. After all, the accuracy is at the risk of the owner and the only risk for the insurance company is the agreed value.

I'm clearly not cut out for a job in the insurance industry. :lol:

Damned if I know - I can only tell you that a) they wanted one when I changed insurers in 2008 and b) the cost of the valuation was twice as much as I originally paid for the car (but that was half a century ago!). I haven't been asked for a further valuation, but we did agree this year that values had gone up and if I wanted to change the agreed amount I would need a new valuation. (So basically I am under-insured - as usual.)

 

[MatthewC]

There's a thing about your car being under-insured of which you need to be careful: if it's worth (say) £5k but only insured for £2k, then if it gets damaged (say £1500) they can write it off and pay you the £2k. Then, if it's vintage, they can sell the wreck which might well cover all their costs or even make them a profit.

This doesn't really work with buildings though; if you are insured for only 75%, then they only pay 75% of every claim. People think that the 75% refers to the worst case only (complete destruction), but in fact they factor every claim by that amount, so even a small fire will leave you well out of pocket (unless you have deep ones).

 

[tobydog]

Flyfisher mentioned agreed values for vintage vehicles. Yes that is correct but it is usually necessary to have a valuation from a professional.

That's interesting. I wonder why it is necessary? Surely the insurance company is only concerned about the agreed value, for which they will set an appropriate premium, rather than if it is an accurate figure. After all, the accuracy is at the risk of the owner and the only risk for the insurance company is the agreed value.

I'm clearly not cut out for a job in the insurance industry. :lol:

Alas I'm a 30 year veteran of the insurance business but thankfully not cars and houses. The insurance business used to be (and still is in some cases) one of the easiest means to launder money and commit fraud. Over valuation was the simplest form. You buy a vintage car for £10,000 with dirty cash, you insure it for £20,000, and the next week it miraculously disappears. The insurer pays and it's an easy £10,000 profit and clean money. The insurer / underwirter and loss adjuster can all be part of the fraud as well. Insurance regulations though the FSA have certainly helped stamp this out in a large number of cases but it still happens and we, as brokers, are duty bound to look for and report all cases of suspected and actual fraud.

On the subject of being under-insured, in the simple case that Matthew has given, if an item of proeprty is worth £5,000 and you only insure it for £2,000, in the event of a £1,500 claim, the insurers could apply average and will only pay out in the proportion to which you were under-insured. Therefore your £1,500 claim could result in a payment of just £ 600 (40%).

 

[88v8]

We paid about £480,000 for our cottage. Our specialist old-house surveyor advised insuring it for £350,000. This seemed low to me, but as he said, 'you already own the site'.

We're insured via County Insurance
http://www.county-insurance.co.uk/for-brokers/county-thatch/

They renewed with a minimal premium increase, and so they should as we'e made no claims here nor any claims at all in 30+ years of house ownership, but that doesn't always stop the premium going up. Might be worth trying them, whether or not you're thatched.

Ivor

 

[Flyfisher]

On the subject of being under-insured, in the simple case that Matthew has given, if an item of proeprty is worth £5,000 and you only insure it for £2,000, in the event of a £1,500 claim, the insurers could apply average and will only pay out in the proportion to which you were under-insured. Therefore your £1,500 claim could result in a payment of just £ 600 (40%).

As an industry 'insider', do you know why it's not possible (or at least seemingly very difficult) to buy a simple policy for a fixed amount of cover, irrespective of the actual value of the item insured?

Thus, for your example of a £5000 item being insured for £2000, the insurer will only be at risk for £2000 and will charge a premium for that amount. In the event of a £1500 claim, the insurer should surely pay in full because they have been charging a premium for £2000 of risk? Whatever the apparent market value of the item, the insurer's risk cannot exceed £2000 and they've been recieving premiums to cover that risk. Any additional loss is the fault of the insured, but it seems completely unfair for the insurer to add to their loss.

To give a practical example, my in-laws never had any home insurance because they couldn't afford it. At one point they investigated insuring for just £100k on the basis that it would be sufficient to buy them somewhere else to live should the worst happen. But, of course, this would have left them woefully under-insured and thus they'd never receive a £100k payout. So they just didn't bother at all. As it happened, they must have saved tens of thousands over the years and were fortunate never to need to claim.

 

[tobydog]

FF - in my area of the business you can insure for what they call first dollar. You effectively insure for a fixed primary amount as part of an overall bigger risk. I think this is what you referring to. I work with the construction of power plants, motorways, rail networks, airports, etc. globally. Our client might contractually agree to insure the first USD 5m on a project actually valued at around USD 5bn with their ultimate client is taking the risk excess of this. The insurer will look at this and think that USD 5m is pretty small in the overall scheme of things, however, the chances of a USD 5m loss are far greater on a project worth USD 5bn than they might be if the project value was just USD 1bn. Therefore he will proportionally price the risk looking at the bigger picture. These first dollar contracts are not too common and our client is normally contractually obligated to insure for the full value when they contractually have full risk of loss.

Although I don't work in the domestic housing market, I can see why this wouldn't work easily here. Firstly, and to be brutally honest, the majority of owners probably aren't savvy enough to understand the real pros and cons of messing with insurance, and secondly, most Insureds have an obligation to insure for full replacement value as a condition of their mortgage. It's not much use to a mortgage company if, when they have first shout on your house due to default, your insurance only covers £100,000 of its worth when the mortage is £200,000 on an overall value is say £500,000. They won't get their money back. I don't know this for a fact but this is probably why the market is quite rigid.

Ivor - you are one of the many paying for the few so whether you had a claim or not, that's how it works. I've been with NFU now for 4 years and in that time the premiums has more than doubled from £400 to £870. NFU clearly knew we were thatched when we started with them but, due to a recent increase in thatch fires involving wood burners, up went the price. I have been locked in discussions with NFU head office for a few months now regarding their policy conditions on what I can and can't do with a thatched house and what we can burn in the burner. They tried to impose new conditions that were simply not workable and their underwriting reasons weren't logical. I managed to get them to change but alas, only for me.

 

[DJH]

We managed to reduce our premium here on two counts, the first being that as we have farm insurance we removed the Employers Liability cover that comes with the policy as we don't employ anybody on our land but, by doing this, we have removed cover for anyone working on our outbuildings such as roof repairs etc. We still have cover though for people working in/on our domestic house under it's buildings and contents cover.

We also reduced the premium by using our insurers table of re-building costs as construction costs have fallen dramatically due to the recession. These costs are based on the square footage of the house which we measured in conjunction with the Insurance company's agent.

It's an interesting point about cover for people working in your house as we always assume that builders have their own insurance but, if their insurance company can unload the costs elsewhere (on us) then they will. An example could be say a man tripping on a loose stair carpet maybe?? Are we all covered for that eventuality?

Doug

 

[mivec]

We paid about £480,000 for our cottage. Our specialist old-house surveyor advised insuring it for £350,000. This seemed low to me, but as he said, 'you already own the site'.

My father was advised not to bother with buildings insurance once his mortgage was paid off.

He lives in an average 60's house on a large plot in a good location.
I was said all the value is in the plot. in fact if the house burnt to the ground the plot could be worth more than the current house value as it's a potentially easier planning application for a new build.

 

[mivec]

Thank you. I've logged my enquiry with NFU Mutual in Sudbury, and wait to hear from them.

I hope you have better luck than I did when I logged an enquiry with my local NFU office last year. They took over 6 weeks to get back to me and were really rude when I said I had arranged cover with someone else.

 

[Flyfisher]

FF - in my area of the business you can insure for what they call first dollar. You effectively insure for a fixed primary amount as part of an overall bigger risk. I think this is what you referring to. I work with the construction of power plants, motorways, rail networks, airports, etc. globally. Our client might contractually agree to insure the first USD 5m on a project actually valued at around USD 5bn with their ultimate client is taking the risk excess of this. The insurer will look at this and think that USD 5m is pretty small in the overall scheme of things, however, the chances of a USD 5m loss are far greater on a project worth USD 5bn than they might be if the project value was just USD 1bn. Therefore he will proportionally price the risk looking at the bigger picture. These first dollar contracts are not too common and our client is normally contractually obligated to insure for the full value when they contractually have full risk of loss.

Although I don't work in the domestic housing market, I can see why this wouldn't work easily here. Firstly, and to be brutally honest, the majority of owners probably aren't savvy enough to understand the real pros and cons of messing with insurance, and secondly, most Insureds have an obligation to insure for full replacement value as a condition of their mortgage. It's not much use to a mortgage company if, when they have first shout on your house due to default, your insurance only covers £100,000 of its worth when the mortage is £200,000 on an overall value is say £500,000. They won't get their money back. I don't know this for a fact but this is probably why the market is quite rigid.

That's for that explanation - I'd not heard of 'first dollar' before but I see what you mean and I think that's what I was referring to.

I take your point about mortgage constraints requiring full cover, that makes perfect sense of course. However, regarding the point about most owners not being savvy enough, I agree with the basic point although I would suggest that it's likely to be easier for someone to understand that if they insure something for, say, £5000 then that's the amount of cover thay have in case of a claim. I'd imagine that they'd be less likely to understand why the insurer will only pay out, say, 75% of their claim because of being under-insured, even when their claim is less than the £5000 risk that've been paying for in their premiums.

But yes, I can see that the general market is geared towards full value insurance and that anything else becomes a bespoke policy that might actually work out more expensive anyway.

 

[LadyArowana]

Wouldn't it be easier to just go into William Hill and get long odds on your house being destroyed during the next year :lol:

 

[DJH]

:lol: :lol: Nice one your ladyship...

Doug