Could leveraging building sums insured help combat Ogden?

April 20, 2017

 

The Government’s decision at the end of February to radically alter the formula for calculating lump sum personal injury payments looks set to have a significant impact on the insurance industry.

 

The ‘Ogden rate’ has been hitting all of the trade press headlines for the past few weeks, with news of increasing premiums, reinsurance adjustments and forecasts of damaged Combined Operating Ratios and insurer profitability.

 

But hold on, what’s Ogden got to do with property and more specifically rebuild costs?

 

To answer this question we’d like to share some recent data insight with you, which if nothing else may give underwriters and brokers some food for thought.

 

The big data

Over the past few months we have assessed buildings (both household and commercial) with a collective sum insured of £1,006,032,525. Overall, our assessments have recommended revision of these sums insured by a total of +£606,256,523. This means that on average, building sums insured should be around 60% higher than they are! 

 

Now there are several ways of looking at this. Firstly, there is likely to be real concern about the severe level of under-insurance we are highlighting here. The negative implications in terms of potential claims disputes, reputational damage, customer relations and PI claims against brokers could be considerable.

 

However, if you look at it another way, it also means there is a rich seam to be tapped within most property portfolios? Helping policyholders ensure they have adequate building sums insured not only adds value and demonstrates customers are being treated fairly, but it can also unlock significant uplift in premiums and brokerage.

 

A timely boost for the pot?

Insurers are already increasing reserves as a result of Ogden, anticipating reinsurance cost rises and will probably have little option but to pass those costs on in terms of liability premium increases. 

 

Perhaps implementing a wider programme to review the adequacy of building sums insured may be a timely and justifiable way of subsidising liability premiums, boosting the overall pot and balancing the books?

 

Just a thought. We’d love to hear yours! Add your comments below or respond on Facebook, Twitter or Linkedin. 

 

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