- A property owner / occupier with property and general contents that you think or know to be worth in excess of £400,000 and £75,000 respectively?
- Someone who has particular valuables, collectibles or assets that haven’t been recently valued?
- Someone who simply hasn’t had their valuables – from jewellery to antiques – coin collections to wine collections, professionally valued in the last three years?
This article is intended to provide a basic outline of the risks you may face and what you can do to avoid them. You can find out more about HNW home insurance policies here.
Alternatively, please click here for another view on this topic from Aviva Private Clients, one of our best-known High Net Worth insurers.
The rise in instances of under insurance in high net worth homes
The issue of policyholders underinsuring their property is a growing one. This is of particular concern in the High Net Worth (HNW) sector because HNW individuals are typically more likely to own more valuables such as art, wine, antiques and jewellery. Items like these normally increase in value but often written valuations held by policyholders are outdated and woefully inadequate when used as a guide for today’s replacement cost. Over recent years, jewellery in particular has accelerated in value largely due to a connected growth in gold value.
Incidentally this has led to reported increases in targeted thefts.
A further contributory concern is that many HNW homeowners may be relying on historic valuations. Combined with escalating value, the ‘gap’ between the insured value and the true market worth of an item may be growing.
A recent article in The Financial Times showed research estimating that 75% of HNW homes in the UK are underinsured. Not having accurate property values stated in your HNW home insurance policy has the potential to cost you significantly in the event of a claim.
Principle of Average
Many policyholders mistakenly assume that insurers will simply ‘pay out’ up to the sum insured listed on their policy schedule. In fact, this is not always the case. If insurers can determine that the item(s) claimed for were not insured adequately, the insurers may apply the ‘average condition’. Insurers apply ‘average’ as a penalty for the policyholder declaring an inadequate replacement value (sum insured), which results in the insurer being denied the opportunity to collect the correct, higher premium due.
Whatever percentage the items are underinsured by, is the same percentage that insurers deduct from their ‘pay out’. An example of this would be a policyholder advising the insurer he owns a £10,000 watch. In the event of the watch being lost, it is discovered that the replacement cost of the watch is actually £20,000. In this example, the policyholder is 50% underinsured, so insurers would settle the claim at 50% less than the £10,000 sum insured and a sum of just £5,000 would be paid towards the £20,000 replacement cost.
If there isn’t a Principle of Average clause in place – and there isn’t always one – then the Financial Ombudsman states that they would typically expect an insurer to pay out to the value that had indeed been declared. While that may sound preferable, it could still see a HNW homeowner significantly out of pocket and unable to replace the lost, stolen or damaged item.
Worse case scenario: Underinsurance and a policy being declared ‘void’
In extreme cases, where valuations are proven to be massively wide of the true value, and where the policy wording provides particular protection to the insurer, the insurer may choose to void the policy altogether. In one case that came to light last year a customer who was only insured for £25,000 worth of contents found themselves completely uninsured when the loss adjuster found that replacing all items taken would actually cost around £125,000.
What you should do to ensure you’re not caught out by underinsurance.
It’s a fast moving world, and it can be difficult to keep an eye on all of the paperwork. Insurance is complicated, jargon addled and time consuming. But there are a number of things you can do that will quickly establish whether you need to take a proper look at your HNW home insurance arrangements.
- Review your current policy, particularly with regards to total sums valued, as well as conditions and terms pertaining to specific valuable items.
- As a simple starting point, use an online home contents calculator to get a feel for what your current situation really is. It will only take 10 minutes and will immediately give you a sense of whether your current insurance arrangements are adequate. Try either of the Hiscox or Aviva calculators.
- Think about the building too. Remember to include the cost to rebuild not only your main home building but also all permanent fixtures and fittings; all domestic outbuildings and private garages; ornamental ponds or fountains, swimming pools and tennis courts; central heating fuel tanks, cesspits and septic tanks; fences, gates, hedges, lampposts, railings and walls; drives, paths, patios and terraces
- Don’t forget the fees and related costs incurred in repairing or replacing damaged parts of the buildings, such as; architects, engineers, surveyors and legal fees; the cost of removing debris, demolition, shoring up or propping up and taking away any damaged parts of the buildings; the cost of meeting current building regulations, local authority or other statutory requirements or conditions provided that the damaged parts of the buildings are repaired or replaced.
- Having a professional assessment of your rebuilding sum insured can normally be arranged at a discounted rate via your insurer’s recommended surveyor and in some cases, insurers are willing to visit your home and provide a free assessment, as part of their cover.
- Take advice from a specialist HNW broker. We would say that, wouldn’t we? Well, we would and it’s true. Ellis David, like any good quality specialist HNW broker, can help you establish not only the true value of your assets, but also to find the best value policy that reflects your needs.
At Ellis David, we pride ourselves on taking the time to understand our client’s particular requirements and ensuring that they are adequately covered (without buying cover that they don’t need). Whether you are an existing customer who would like to review your cover or a prospective new customer looking for professional, impartial advice, get in touch with us either through the website here or give us a call on 0207 354 3881.