Insurance company doubled my rebuild cost

[Cubist]

If you take this to the extreme, it makes sense why the insurance companies work the way they do.

Imagine you had a house made out of gold, diamonds and precious jewels with a rebuilt cost of £100M.
You insure it with a rebuild cost of £1M.

Something really simple like getting a washing machine fitted could easily cost £1M in damage. Simply by scraping the wall.

This would mean you would receive £1M pay-out on a very regular basis.

In short, your expensive house to rebuild increases the risk. I.e. the likelihood of a significant pay-out (risk is magnitude x likelihood).

If you only insure it for £1M you are reducing the insurers exposure, but not the likelihood of a pay-out.

Using simple maths, they are arguing that your likelihood (and therefore risk) is 100X higher than another house with a genuine rebuilt cost of £1M, and therefore we will only pay out 1% of your level of cover as you've effectively lied about the overall risk.

As much as it pains me, it is fair.

You need to look again at the processes and caveats the insurers typically use to determine the Rebuild Cost in the event of a Total Loss claim. Usually that number comes from 'their' 'Preferred Repairer' rather than reference to ANY independent authority or methodology.

 

[Flyfisher]

A very good point. I wonder how many insurers have ever paid out MORE than 100% for a claim on the basis that a property was OVER-insured?

Plus, because the system punishes under-valuation, it encourages over-estimation of the rebuild costs. Someone previously mentioned a company that would calculate a rebuild cost and, in the event of a claim, would cover any losses due to an under valuation. Fair enough, but where would we expect them to pitch their estimate? My bet is it would be on the high side, simply to reduce their risk, which will inflate the insurance premium - quite probably unnecessarily. Again, the home owner pays the price.

Seems to me that however the system is pitched, it works against the interests of the home owner. Perhaps this didn't matter too much when premiums were a few hundred pounds, but they are now a few thousand pounds (often more than council tax) and seemingly increasingly difficult to find as many insurers pull out of the market for anything 'non-standard', for which listed properrties are prime examples.

If the trend continues it will lead to more under-insured, or even non-insured, listed properties and the increased likelihood of complete losses when such properties are not restored after a major event and what remains is just left to decay completely.

 

[Cubist]

A very good point. I wonder how many insurers have ever paid out MORE than 100% for a claim on the basis that a property was OVER-insured?

Plus, because the system punishes under-valuation, it encourages over-estimation of the rebuild costs. Someone previously mentioned a company that would calculate a rebuild cost and, in the event of a claim, would cover any losses due to an under valuation. Fair enough, but where would we expect them to pitch their estimate? My bet is it would be on the high side, simply to reduce their risk, which will inflate the insurance premium - quite probably unnecessarily. Again, the home owner pays the price.

Seems to me that however the system is pitched, it works against the interests of the home owner. Perhaps this didn't matter too much when premiums were a few hundred pounds, but they are now a few thousand pounds (often more than council tax) and seemingly increasingly difficult to find as many insurers pull out of the market for anything 'non-standard', for which listed properrties are prime examples.

If the trend continues it will lead to more under-insured, or even non-insured, listed properties and the increased likelihood of complete losses when such properties are not restored after a major event and what remains is just left to decay completely.

Having recently undergone my annual review of renewal documentation and alternate quotations my experience is that most of the insurers out there will include, in a very understated fashion, that they will penalise anyone they considered to have Over insured their property by calculating what the original premium value would have been based on their current view of the rebuild cost and using the percentage difference derived to then reduce the settlement/compensation figure. So.... Damned if you do and Damned if you don't!

As you say @Flyfisher this is one of the key reasons that period properties are often left un-repaired/restored fowling a major and event.

 

[Flyfisher]

It just gets worse!

 

[Cubist]

It just gets worse!

As do my autocorrect failures!

 

[a twig]

The problem is that it becomes a perpetuating cycle - I have colleagues who are required to have house insurance by their mortgage company but who knowingly wildly under insure as they can’t afford the premiums otherwise.
They basically do the bare minimum policy to get a certificate to show the mortgage company, then put half the premium difference into a savings account and cross their fingers, and I’m sure they aren’t the only ones.
While total property loss is increasingly rare, every time it happens and someone is underinsured it adjusts the statistical risk data the companies all use giving them an excuse to punt premiums up again, which forces more people to underinsure and so it goes on…

 

[a twig]

If a “disruptive” insurer was prepared to collect their own data and build a realistic risk model - they’d offer premiums half that of the going rate and corner the market whilst still making a healthy profit

 

[Lacan07]

The problem is that it becomes a perpetuating cycle - I have colleagues who are required to have house insurance by their mortgage company but who knowingly wildly under insure as they can’t afford the premiums otherwise.
They basically do the bare minimum policy to get a certificate to show the mortgage company, then put half the premium difference into a savings account and cross their fingers, and I’m sure they aren’t the only ones.
While total property loss is increasingly rare, every time it happens and someone is underinsured it adjusts the statistical risk data the companies all use giving them an excuse to punt premiums up again, which forces more people to underinsure and so it goes on…

I've often wondered why Im insuring this house, other than the obvious of course. I don't care if I get robbed, I just care if it burns down but as someone on here once said probably best in that scenario to pull up a garden chair and watch it disintegrate into a pile of ashes before phoning the fire brigade.