When policyholders reduce sums insured to lower premiums
It happens! A policyholder wants to reduce their insurance premium, so they turn to the buildings sum insured without properly considering the rebuild cost of their property, or any other consequences.
And when the policyholder insists, it's never an easy conversation for brokers to have with their clients. After all, it's the policyholder's responsibility to set the sum insured on buildings, not the brokers, isn't it? However, like most things in life it's never that simple, as a fascinating broker case study from BIBA demonstrates:
BIBA's 5th Professional Indemnity Initiative publication entitled 'An Essential Guide to Professional Indemnity Risk for General Insurance Broker Staff' includes an underinsurance case study which contains some elements you may find interesting.
According to BIBA, the broker was instructed by their client to reduce the sums insured. The broker advised the client, in writing, on three occasions that it was "not advisable" to do so. The insured insisted, telling the broker that their accountant had advised them they were overinsured and that significant premium could be saved. The broker carried out the instruction "because it was in writing". A claim then followed in the same policy period and the insurer denied liability on several grounds including:
Misrepresentation of material information by the broker - who knew/believed the insured was underinsured and did not tell the insurer!
Misrepresentation of material facts - the accountant's figures were later proved (by loss adjusters) to be incorrect
BIBA said the claim against the broker succeeded and was settled out of court for an undisclosed sum equalling the full limit of indemnity of the broker's E&O policy.
Of course what would have prevented all of this would have been a professional assessment of the buildings sum insured BEFORE any claim occurred. However, this case is at least 7 years old. This was a time when an assessment by a 'Regulated by RICS' provider would have cost an arm and a leg!
With Insuranceshortfall.com driving down the cost of on-site rebuild cost assessments and offering an innovative low-cost desktop solution for less than £150, can there really now be any excuses for lowering the buildings sum insured to save on premium?
Sign up for a broker account at RebuildCostASSESSMENT.com today.