OPINION: Homeowners risk being under-insured
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Very few products or services have remained priced at the same level as they were six months ago, but some have risen much faster – and more steeply – than others. Food and fuel prices are perhaps the most obvious: we see both edging up in price on an almost daily basis as inflation takes an increasingly large and more frequent bite out of incomes.
Earlier this week, personal finance website Moneymapp revealed that average premiums for home insurance have risen by more than 12pc since the start of the year, with the over-50s hit with the largest increases.
Moneymapp’s findings were reinforced by Michael Miskelly of Consumer Intelligence who, when asked whether premiums will continue to soar, replied: “The answer is yes. Over the next year, underlying upward pressure on costs will likely see… consumers pay more for their motor and home insurance. Factors contributing to this include the rising cost of motor repairs and parts, building materials and labour."
Mr Miskelly’s reference to the increasing cost of building materials is particularly pertinent. Figures from the BCIS Materials Cost Index show that the current inflation rate for building materials is an eye-watering 20.3pc – the highest since 1982.
Nor can the pandemic’s continued malign influence be ignored. An estimated 1.3 million foreign-born workers have left the UK since the start of the pandemic, causing labour costs to soar. When evidence of increasing labour expenses is combined with massive increases in building materials, it becomes evident that rebuilding costs – i.e. those for which we take out home insurance – must also rise in unison.
According to Ken Carter, head of insurance services at Moneymapp, there are two other inflationary factors to take into account: “First, unpredictable weather patterns have played a part in pushing insurance costs upward,” he says.
“Northern Europe experienced three severe storms at the beginning of the year. The estimated insurance cost to the UK of February’s Storm Eunice, for example, was between £300m-£350m. It follows that if insurers are increasingly unable to price future risks associated with volatile weather patterns reasonably accurately, the costs will be passed onto homeowners.”
Mr Carter also believes we should not ignore changes in modern property design and construction methods.
“Many modern buildings are less robust when it comes to withstanding storms and flooding,” he notes, adding: “While the glossy magazine-driven fashion for open-plan living makes containing a fire much more difficult.”
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It’s a point worthy of further consideration should people be contemplating refurbishing their home.
The result is that homeowners appear trapped in a perfect inflationary storm where they’re having to contend with regular and significant price rises plus a specific surge in labour and material expenses. In addition, often violently unpredictable weather and growth in the trend for open-plan living has caused their insurance outgoings to rise. However, the fear is that as property insurance premiums increase, so more people will unwittingly under-insure their homes in a flawed attempt to save money.
Homeowners tend to have a very good idea of their property’s market value, but determining rebuild costs is a completely different calculation. Essentially, these expenses comprise the cost of labour and materials as well as professional expenses involved in reconstructing the property from the ground up in the event it is completely destroyed.
If the rebuilding figure is underestimated, homeowners could find themselves in the unenviable position of not having the correct level of insurance. Conversely, people who guess their rebuild value based upon their knowledge of its open-market value tend to overpay for home insurance, making it much more expensive than necessary.
The likelihood is that rapid rise in rebuild costs has resulted in a much larger number of homes being underinsured. As a consequence, there’s a strong probability that from an insurance perspective, a growing number of properties could be considered ‘vulnerable’. In other words, homeowners could find themselves significantly out of pocket if they had to make a claim.
Ken Carter notes that: “As home insurance prices soar, it makes good sense to shop around and take advantage of websites such as Moneymapp.com which are capable of comparing the costs at more than 100 different insurance companies.
“Homeowners can save more than £100 on their home and contents insurance simply by completing an online form which takes just a few minutes. As inflation’s grip grows even tighter, it begs the question: ‘why wouldn’t you?’”
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.