We’ve often spoken about the Average Clause, but homeowners are now being warned of a potential issue that could leave them with no cover at all in the event of a claim.
Home insurance products in the UK often provide buildings cover up to a set amount, such as £1m. In the past, £1m would have seemed more than enough for most properties, even those with four or five bedrooms.
However, due to rising rebuilding costs, this kind of ‘blanket’ or ‘bedroom-based’ cover for household buildings may no longer be adequate. And rather than applying “average” and reducing the payout in the event of a claim, homeowners may find themselves with a cancelled policy and no payment at all.
Steve Moores Dip CII, Client Director at Howden Private Clients told us they have seen examples of this, leaving clients exposed to claims disputes. This is because an insurer can adopt a position of... had they known the true rebuild of a property, they would not have offered cover at all.
No longer enough?
“We’ve seen cases recently where those with £1m blanket policies are being looked at more closely by loss adjusters,” said Steve. “In one such case, the insurer initially said they would seek to cancel cover from inception and repudiate the claim. This was on the grounds that the rebuild cost was around 25% more than the £1m blanket cover in place.
“The simple fact is, £1m no longer represents the kind of ‘more than enough’ amount it was a few years ago. Rebuild costs have risen sharply over the past two to three years and we really need to ensure our clients are adequately protected.”
Steve added: “Where we’ve come across this issue, we’ve been able to successfully negotiate a full claim payment, but clients without a broker will be on their own.”
Howden told us they’re currently pro-actively reviewing their blanket policy coverage as well as engaging individually with homeowners of larger properties.
Desktop assessments
A solution to this underinsurance issue us to arrange a desktop rebuild cost assessment for properties covered under blanket policies, particularly those with 4 bedrooms or more.
Steve added: “Ideally, we need the industry to look again at the level of blanket cover it provides. But in the meantime, we must make sure our clients always receive a positive outcome should the worst happen to them.
“I’d encourage brokers and clients not to assume that blanket or bedroom-based household policies will fully protect their clients. The kind of disputes we’re now seeing suggest an independent RICS regulated report, which supports the level of cover in place, is something of significant value to those we arrange insurance for.”
For an 'Everything you need to know about the Average Clause' blog article click here.