Wednesday 28 August 2013

Property Owners Average Condition

Anyone who owns and wishes to insure a property; beit their own home, a let property or a commercial premises will be asked by their Broker / Insurer the amount of cover they require for the Buildings. The figure given should represent the rebuild value of the property but should also take in to account other factors such as: debris removal, architects, surveyors, consultants, legal fees and VAT and any additional cost of complying with government or local authority requirements.

A lot of the time people will estimate it themselves to be around 60 - 80% of the market value of the property as the market value also takes in to account the land on which the property is built. This may not always be sufficient though depending on where the property is located, its age, ease of access, construction and if the property is grade listed.

On pretty much every insurance policy which incorporates cover for buildings, there will be a condition within the wording of the policy called the "Average Condition". This condition would come in to force where a property owner makes a claim but has not insured their property for a sufficient amount.
It is the property owners responsibility to ensure that they provide the correct value at the time they take insurance out on their property. There are several ways to get an accurate idea of what the rebuild value should be below but if in doubt it is always best to overestimate it (even though it may mean you pay slightly more on your insurance premium).

Gross underinsurance could potentially have quite a disasterous effect on the property owner if the Average condition is applied. The payment made by the insurer would be calculated using the following formula:

(Sum insured / true value at inception) x loss

To put this in monetary terms:

Let's say you own a property and insure it for £300,000 and then suffer an insured £110,000 fire loss, but at the time of the loss the insurers have calculated the building to be valued (rebuild) at £340,000, the insurers would pay (300,000 / 340,000) x 110,000 = £97,059.
This means the property owner would be left to pay the shortfall of £12,941 themselves to get their property fully reinstated where the extra £40,000 cover at inception may have typically cost about an additional £40.

There are several ways to get an accurate rebuild figure for your property. Your mortgage company may give you a figure, you could have a surveyor visit your premises to provide one or there are some online facilities such as the one on the Association of British Insurers (ABI) website.

For more information on what Advance Insurance do, please see our website www.advanceinsurance.co.uk

Thursday 15 August 2013

Insurers updating their Flood Areas

Check your Flood excess!

With the increasing instances in flooding from prolonged spells of rain and flash flooding from short heavy downpours, we have noticed a lot of mainstream insurers have been re-categorizing a lot of addresses as being in "an area at risk of flood".
Insurers have been investing heavily in updated and comprehensive flood mapping systems in order to properly manage their exposure when it comes to acts of nature. The systems provide information on worst case scenarios ranging from the areas "at risk of flooding" due to rivers breaking their banks to the types of soil in particular areas which may effect surface water run-off and cause flash floods. Some of the systems are apparently accurate to within 5 square metres.
The important thing to note here is that you don't necessarily need to live near a natural watercourse to be deemed to be in an area at risk of flood.

If your existing insurer now deems your property to be in a flood risk area, it may effect your policy in the following ways at renewal depending on how severe a risk they rate you to be:

1. They may not offer renewal terms
2. They may exclude Flood cover
3. They may heavily increase your premium
4. They may increase your policy excess for Flood (up to as much as £10,000!)
5. They may do more than one of points 2, 3 and 4.

At renewal, the insurers are supposed to highlight any significant changes to your policy but this can be a single line on a page of writing so could be easily overlooked.

The point I'm trying to make is, when you get your renewal through for your home, let property, business premises etc, even if it's just a contents policy, it's always a good idea to double check the perils you are covered against and the corresponding policy excess for each one.
For more information on what Advance Insurance do, please see our website www.advanceinsurance.co.uk