Listed Building Insurance - Again!

[Flyfisher]

This is a fairly regular topic of discussion on PPUK so I was interested to listen to a report on BBC R4's 'You & Yours' consumer programme recently about the perils of under-insuring listed properties.

In short, the owner of a listed house had insured for a rebuild value of £150k and subsequently tried to claim £6500 for a wall damaged by a lorry. When the claims adjuster visited, he thought the house was under-insured and asked for the footprint area of the house. The owner stated it was about 65m2 for which the loss adjuster said the rebuild value should be about £337k (about £5200/m2 - which seems ridiculously high to me, though there was no discussion about the type of property). On this basis, the insurance company would only pay a proportion of the £6500 wall damage claim, based on their determination of the amount of under-insurance on the property as a whole.

The report can be heard here: https://www.bbc.co.uk/programmes/m0006n12 and starts at 9:25 mins into the programme.


I was disappointed that there was no justification from any insurers about why they believe it is fair and reasonable to reduce any subsequent claim in proportion to the amount of under-insurance. As the owner of a G2* listed property, where rebuild values are notoriously difficult to estimate, I am very concerned about this behaviour by insurance companies. Indeed, I tend to agree with the unfortunate owner in the report that this is mis-selling, if not downright fraudulent.

If a house is insured for, say, £100k then the maximum risk to the insurer is £100k, for which they charge their premium of £x. Fair enough.

If the house is completely destroyed then the owner should be able to claim up to the £100k for which they have been paying the premium of £x. Simple.

If it turns out that the house actually costs £200k to rebuild then the owner should reasonably expect to only receive the £100k insured value. This would, of course, be tough on the owner but understandable.

However, for the insurance company to then declare that because the house was only insured for 50% of its rebuild value they will only pay 50% of the insured value, ie £50k in this example, seems scandalous in the extreme. Their risk has not changed due to under-insurance, it remains a maximum £100k whatever the rebuild value.

Why do insurers even need to know the rebuild value of a property? Why does it affect their risk? Their risk is surely the maximum amount specified on the policy and they charge an appropriate premium for that risk. I’m sure they would not pay out £100k if the house only cost £80k to rebuild so why should they be allowed to reduce their payout if the house costs more to rebuild? Surely that's the owner's risk to decide?

I understand that classic car insurance policies are available in which the owner and insurance company pre-agree the value of the car because of the difficulty in valuing such individual vehicles. The insurance company then charges a premium for the agreed amount of cover. If the car is damaged or destroyed then the policy will pay out the necessary amount for repairs UP TO the agreed amount, with no subsequent debate about whether the car was properly insured – which seems eminently fair and reasonable.

Should something similar be available for ‘classic’ properties?

 

[88v8]

The principle of 'average', or 'underinsurance' as it is sometimes called, has been routine since, well I don't know but certainly 60 years or more.

It applies not only to total losses but also to partial losses because a more valuable item more easily runs up a larger repair bill.

Interesting to note a comment in the Wiki page
https://en.wikipedia.org/wiki/Condition_of_average
'To remove the risk of homeowners unwittingly falling into an underinsurance trap, New Zealand has legislation to ban the use of average clauses for dwelling houses' although it is not clear whether this applies only to Contents insurance.

I agree that it seems unfair for the Insured to be solely responsible for establishing the insured value, with the insurer taking an interest only when there is a significant loss. I suppose this is partly a matter of practicality: If the insurer had to send a surveyor to every risk to check values, this would increase their costs and premium.

Yes, there is an Agreed Value option for classic cars. I have such a policy. There may also be an extra-cost option to receive up to 150% of the insured value so that a cherished vehicle can be uneconomically repaired, ie where the repair cost exceeds the value.
This is possible for classic cars because there is a general consensus on values, based on sale prices and in particular published auction results which are monitored by specialists.

Back to Period buildings... some of the top-end insurers may do things differently, but I do agree that insurers could be more forthcoming about how they establish values. At least they could provide guidance based on costs per sq ft, but then how relevant would that be to a Period house that could vary from the most 'umble to the most elaborate.
I was surprised when we bought our C17 cottage that our surveyor suggested an insurance value significantly less than market value, not that I took any notice.

The rather opaque situation seems to me not unanalagous with the Listed Buildings regs, where a new owner receives no guidance whatever from the Local Authority as to what they may or may not do, but may be penalised if they are in breach.

Ivor

 

[Bogart]

Or even if the previous owner was in breach before they moved on.
Insurance never has, nor ever will be done sensibly to favour the insured. All I think what one can do is, as in my case, insure it for the market value plus a factor, in my case I add an extra 10%.
There are numerous silly rules governing listed properties one of which annoys me is the cleaning of log burner chimneys/flues. I am expected to get it cleaned after use in the spring, say in May and again before
commencing in say October. What is supposed to have happened to it in the intervening 5 months?

 

[CliffordPope]

It seems absolutely obvious to me that if a house is underinsured to the extent of 50% then a partial claim will only result in a 50% pay-out.
Neither the insurer nor the owner knows which bit is going to be damaged in the next claim, so obviously the insurer is covering the risk to the entire fabric.

It's notoriously difficult to put a figure on rebuild cost, which is why many insurers simply use a blanket figure - ours is £1m, about 3X the actual value.

A partial repair is likely to cost proportionaly more than a total rebuild, if there are problems matching small runs of special bricks, woodwork, stonework.
An extreme case was a case highlighted some years ago. Someone had a rebuilding cost which appeared to be more than adequate. Then in exceptionally heavy rain the house was undermined by flash floods, became unsafe and had to be demolished. The cost of putting in new foundations alone used up the entire sum insured.

 

[Gothichome]

We are dealing with this exact issue now. We have a rebuild ‘like for like’ policy on Gothichome. Based on a sizeable costing amount, a couple of months ago the insurance company sent there guy to inspect Gothichome. Got the response from the insurance company last week. They over doubled the rebuild costing and dropped the ‘like for like’ coverage and upped our premiums accordingly. I won’t get into the numbers but they are sizeable, far more than market value.
So we now we have to make a decision, they offered us a reduced value policy, they will rebuild but with brywall not plaster, standard building materials ect. or we can opt for an agreed value for total loss. We have no mortgage so we could even go without insurance but am keen on that idea.

 

[Flyfisher]

It seems absolutely obvious to me that if a house is underinsured to the extent of 50% then a partial claim will only result in a 50% pay-out.
Neither the insurer nor the owner knows which bit is going to be damaged in the next claim, so obviously the insurer is covering the risk to the entire fabric.

I know that's the excuse they use but I don't buy it. The insurer might be covering risk to the entire fabric but only up to the value insured. So their maximum risk is the amount insured, regardless of the amount of damage caused and claimed. They work out their premium based on their maximum risk and that's what the insured is paying for. Therefore, to subsequently reduce their payout is tantamount to fraud.

In the case of the programme's example, the house owner was paying premiums to provide up to £150k of cover. He only needed to claim £6500 so that was well within the maximum insured and should, in my view, have been paid in full. If he had needed to claim £200k for a total loss then obviously he would have suffered because he was only insured for £150k, which in my view is understandable - his choice, his risk. But by allowing the insurance companies to subsequently claim 'under-insurance' it means no one can be 100% sure that they have enough cover, which means the only way to be safe is to over-insure . . . which I'm sure the insurance companies love. I bet they wouldn't pay out more than is claimed if it turned out that the property was over-insured! Sorry, but I think you're letting them off too lightly!

 

[Flyfisher]

Yes, there is an Agreed Value option for classic cars. I have such a policy. There may also be an extra-cost option to receive up to 150% of the insured value so that a cherished vehicle can be uneconomically repaired, ie where the repair cost exceeds the value.
This is possible for classic cars because there is a general consensus on values, based on sale prices and in particular published auction results which are monitored by specialists.

Don't get me started on 'uneconomical repairs', i.e. writing off a vehicle instead of repairing it to the pre-crash condition.

Given the ridiculous price crash repairs these days**, even the smallest bump can result in a repair cost of many thousands of pounds. If you have a car worth anything less that around £5k then you're in serious risk of having it written off in the event of an accident. Now, if the accident is the insured's fault then I can sort of understand this but if the insured was at no fault then I really cannot.

If someone causes, say, £5000 of damage to my car then I would expect them to pay the full repair bill. The fact that my car might only be worth £1000 is irrelevant to me. In fact, I don't really care what the repair bill is, they've caused the damage so they should pay to fix it. I just want my car restored to its original condition before they caused the damage so that I am no worse (or better) off than before the accident that was not my fault. I find it astonishing that someone could cause £5000 worth of damage but only be required to stump up £1000.




** By 'ridiculous' I mean £2600 to replace a wing mirror and repair a slight dent in a door. And no, it wasn't my fault!

 

[88v8]

It seems absolutely obvious to me that if a house is underinsured to the extent of 50% then a partial claim will only result in a 50% pay-out.

I know that's the excuse they use but I don't buy it.

Alas, that's the way it is.
And not only Home insurance, but all the Property insurance classes of which I'm aware. If they deem you to be underinsured, they'll knock down the claim proportionately.

As regards your car, I presume this is not a Period vehicle............. but perhaps you could do what I did when the n/s mirror was broken on my Land Rover, which is to buy a convex stick-on, and stick it over the broken glass. That was around nine years ago, still doing the job.

Yes, it would be annoying if someone else's error wrote off one's car. If our 1990 Pug 205 gets dinged, I'm inured to the fact that we'll be buying back the salvage and mostly repairing it out of our own pocket.

Hello Bogart.... indeed, what is supposed to have happened. This is one reason that I decided not to bother with insurance any more.
It is a principle of insurance that one should act as if uninsured, well now we're not acting.

Ivor

 

[Flyfisher]

As regards your car, I presume this is not a Period vehicle............. but perhaps you could do what I did when the n/s mirror was broken on my Land Rover, which is to buy a convex stick-on, and stick it over the broken glass. That was around nine years ago, still doing the job.

Yes, not a ‘period’ vehicle, a Mercedes estate, about 6 years old at the time so £2600 of repairs did not write it off, fortunately. Had it been my venerable old 1995 Saab then it would have been a different matter. Funny you should mention your Land Rover though. I’ve since changed the Saab for an old Defender and I broke a wing mirror on a tree. A replacement cost less than a tenner and I fitted it myself. Of course, had it been ‘an insurance job’ who knows what the garage would have charged . . . But that’s probably another discussion! :evil:

Yes, it would be annoying if someone else's error wrote off one's car. If our 1990 Pug 205 gets dinged, I'm inured to the fact that we'll be buying back the salvage and mostly repairing it out of our own pocket.

Certainly an option, though why should you have to pay for the repairs? If the car is damaged by someone else and their insurance company writes it off as uneconomical to repair, why should that be your problem? Personally, I’d consider suing the person responsible for the excess repair costs that their insurer would not pay for. Why should I end up losing out?

 

[88v8]

If the car is damaged by someone else and their insurance company writes it off as uneconomical to repair, why should that be your problem? Personally, I’d consider suing the person responsible for the excess repair costs that their insurer would not pay for. Why should I end up losing out?

Why indeed, so if you can be bothered...
https://www.which.co.uk/consumer-rights/advice/my-car-insurance-policy-doesnt-cover-all-my-losses-what-can-i-do

Our Pug would certainly be written off, even though it's done less than 30,000 miles. My [late] father's from new. I suppose it's worth less than £1,000. Especially considering the various body 'modifications' that my wife has inflicted on it

Ivor

 

[Flyfisher]

That’s encouraging . . . So I wonder why more people don’t do this? I’ve known a few people who’ve had their cars written off and just accepted it. Hardly a representative sample though! :wink:

 

[CliffordPope]

In the case of the programme's example, the house owner was paying premiums to provide up to £150k of cover. He only needed to claim £6500 so that was well within the maximum insured and should, in my view, have been paid in full.

You are missing the point that the insurer was in fact providing cover for the entire house, not just the bit that happened to be damaged.
Insurance cover, and hence the potential risk to the insurer, was for the whole house. Your argument is like saying why, after a year with no claims, should an insurer not be refunded his entire premium? There has been no cost to the insurer.

Insurance is correctly priced on the basis of what might happen, not what actually happened.

Of course it would in theory be possible simply to insure the corner nearest the road only, and leave the rest of the house uninsured. But I suspect that if there were a freak accident and a different corner were damaged, you would still claim the insurer ought to be responsible.
Or what about insurance that only covers the accidents that actually happen, and provides free cover for everything that doesn't?

 

[Flyfisher]

You are missing the point that the insurer was in fact providing cover for the entire house, not just the bit that happened to be damaged.
Insurance cover, and hence the potential risk to the insurer, was for the whole house.

I understand exactly the point you are making, I just don’t agree with it.

I’m saying, yes, the insurance is for the whole house BUT their risk is only up to £100k whatever happens.

Insurance is correctly priced on the basis of what might happen, not what actually happened.

Of course. And in our example, what might happen is that any part of the property might be damaged but the liability to the insurance company will only be a maximum of £100k. They would therefore set a premium according to their maximum risk, i.e £100k, and this risk remains true whatever the rebuild value of the property might happen to be. If they subsequently refuse to fully pay out for claims up to the amount insured, then they must surely be guilty of charging too high a premium.

 

[88v8]

They would therefore set a premium according to their maximum risk, i.e £100k, and this risk remains true whatever the rebuild value of the property might happen to be. If they subsequently refuse to fully pay out for claims up to the amount insured, then they must surely be guilty of charging too high a premium.

A loss limit and no Average, that's known as a First Loss policy, and may be available in some classes of insurance on some very large commercial risks.
There is usually a substantial deductible [excess] often six figures, so the insurer doesn't have to get involved in run-of-the-mill losses.

But in the home & contents market, a large excess would be unaffordable for most people. The majority of losses are partial losses, so the insurer would see little or no saving in claims cost. Hence there is little scope for reduction in premium.
AFAIK, First Loss policies are not available for those of us in sub-Blenheim abodes, if indeed they are available in the Home & Contents market at all.

Ivor

 

[Flyfisher]

Hmm. That’s interesting, though I wonder if more specialist insurance policies would cost more than simply over-insuring for safety? Personally, I wouldn’t mind an excess up to around £10k because the way ‘insurance jobs’ are inflated it would probably mean I could DIY that level of damage for around 1/3rd of that, plus my time. It’s all a bit of a nightmare really, though not as much as a total loss, of course.

The previous owners of our house had no insurance at all because they couldn’t afford it. They wanted to take out a policy for just enough to move to a much smaller house should the worst happen but because of ‘averaging down’ it was not feasible so they just didn’t bother. I sometimes wonder about doing the same myself. I wonder how many householders sleep soundly at night thinking they are fully covered for anything that could happen without realising they are actually largely on their own if the worst happened?

 

[tobydog]

FF - Clifford Pope is correct when he describes the way that certain insurance arrangements are risk assessed.
I know from previous threads that the arrangement you have agreed and have in place with NFU is a First Loss Limit policy. You have expressly agreed a specific Sum Insured that both you and NFU know is below the actual rebuild cost. Although you have a lower Sum insured, NFU would still have assessed your premium based on the estimated total rebuild cost and not just the lower limit. As has been mentioned earlier, the bigger the overall risk, the higher the chance of even a smaller limit loss.
Now, what the vast majority of period property owners have is a policy with a Sum Insured in line with the estimated rebuild cost. In my case a few months ago, I secured the most accurate rebuild cost by working with Cunningham Lindsey Loss Adjusters (through NFU) so I am pretty comfortable that I shouldn’t have any issues with NFU in the case of a partial or total loss. This will need updating periodically.
Many other owners, when asked by their insurer to provide a rebuild cost, take a wild guess or estimate based on an outdated index linked figure, or worse, the market value. The insurer requests this number in good faith and assesses the premium based on this figure being the worst case scenario. So, if an owner provides a worst cast figure of £250,000 when the actually figure is £500,000 then the insurer has severely underestimated the overall risk.
In the event of a £500,000 loss the insurer theoretically has two options. The first is to say to the Insured that the premium was half what it should have been and therefore they want the extra premium before they settle the claim. Trust me, that is not going to happen. The only option is for the insurer to say that the Insured understated the risk, underpaid the true premium, and therefore insurers will settle accordingly and apply Average. This should come as no surprise because, as far as I know, all Property policies clearly state what happens in the event of under valuation. This is rightly viewed by insurers as a misrepresentation of the risk (knowingly or otherwise) and applying Average is the only fair way of correcting this. If insurers can prove that it was done with intent, then they could be within their rights to void the policy and deny the claim.
So, you either have a policy based on full rebuild cost or you have a pre-agreed policy based on a First Loss Limit. You can’t have you cake and eat it and still try and benefit from a misrepresentation.

 

[tobydog]

Ah, just noticed Ivor got in there first.

 

[Flyfisher]

I know from previous threads that the arrangement you have agreed and have in place with NFU is a First Loss Limit policy. You have expressly agreed a specific Sum Insured that both you and NFU know is below the actual rebuild cost. Although you have a lower Sum insured, NFU would still have assessed your premium based on the estimated total rebuild cost and not just the lower limit. As has been mentioned earlier, the bigger the overall risk, the higher the chance of even a smaller limit loss.

You're right about a previous thread but not quite correct about the detail. I've no special arrangement with NFU and neither of us 'know' that the sum insured is below the actual rebuild cost.

I based my original rebuild cost on a £/m2 rebuild cost figure by the specialist surveyor who checked over the house before we took it on. It worked out to be about £1.3m which was about 1/3rd the then market value so I was fairly comfortable with that amount. When we moved to NFU for insurance, I asked for someone to visit and confirm they were happy with this figure because I was mindful of the risk of under-insurance. Mr NFU agent confirmed he was happy with the figure.

During our discussion, I posed the question about what happens if the rebuild cost turned out to be greater than the sum insured and would NFU reduce any claim accordingly. I was told that they would always pay out up to the amount insured and that if it turned out that was not enough for the rebuild then that would be my risk.

I was very happy with that (after all, I figured that should the worst happen then having £1.3m should at least keep some sort of roof over my head) but told Mr NFU Agent that I previously understood that insurance companies would reduce claims in cases of under-insurance. He assured me that would not be the case with NFU and said he would check with head office, which he subsequently did and again confirmed that I would be covered for up to £1.3m regardless of eventual rebuild cost. I'll see if I can dig out written confirmation of this - I'm sure I had it at sometime - or perhaps I'll just write to them again for confirmation, in the light of that BBC R4 programme.

 

[88v8]

... told Mr NFU Agent that I previously understood that insurance companies would reduce claims in cases of under-insurance. He assured me that would not be the case with NFU....

Is there is an Average clause in the policy?
If there is, then that's how it is.
Unless NFU appiies an endorsement to say otherwise.

Mind you, at that value level, you are in the foothills of the Home Insurance stratosphere where conditions may vary from those on earth.

Ivor

 

[Gothichome]

We are dealing with this exact issue now. We have a rebuild ‘like for like’ policy on Gothichome. Based on a sizeable costing amount, a couple of months ago the insurance company sent there guy to inspect Gothichome. Got the response from the insurance company last week. They over doubled the rebuild costing and dropped the ‘like for like’ coverage and upped our premiums accordingly. I won’t get into the numbers but they are sizeable, far more than market value.
So we now we have to make a decision, they offered us a reduced value policy, they will rebuild but with brywall not plaster, standard building materials ect. or we can opt for an agreed value for total loss. We have no mortgage so we could even go without insurance but am keen on that idea.

Well folks, we made decision. Staying with the same company and swallowing the cost, it didn’t go down well. To elaborate further, we were insured for a one million (can $), to rebuild, thought to be ample four years ago. After the insurance fellows report, it was estimated to be $2.5 million to rebuild. Gothichome is no were near that. We got a couple of quotes, no insurance company would handle us except one. They offered a $0.9 million total loss pay out. Their premium was only $200 less than the $1.9 offered on a rebuild policy with out the ‘like for like’. So in the absence of offers we chose to stay with the original company. This increased my premiums by one third our original premium.
I certainly hope they are not going to try this again next year.