Buildings and contents insurance are probably the most natural general insurance products for brokers and intermediaries to sell. While contents insurance is not compulsory for homeowners, it is more often than not packaged with buildings insurance. In the past, this has generally represented better value for your clients. However, the latest AA British Insurance Premium Index reported that the cost of a combined policy showed a steeper increase than either buildings or contents alone, rising by 8%. The average quote for a home contents policy has increased by 6.4%, to £113. Buildings insurance rose 5.9% over the fourth quarter of 2009, to £199. So, it might be worth shopping around for separate policies for your clients at the moment.
Why the rise in buildings insurance if house prices are still falling, I hear you ask? Clearly claims experience has an impact on pricing: the harsh winter led to an upsurge in claims for buildings damaged by snow and ice, and flood damage continues to represent a real headache to insurers. However, the cost of rebuilding and repairing homes to the higher standards required by building regulations has been rising steadily – and it is the cost of rebuild, not the market value, that is the sum insured. This is the most that an insurer will pay out under any circumstance.
It is the responsibility of the homeowner to get the insured sum right. However, there is a real danger of both over and under-insurance as most homeowners don’t have a clue as to the full rebuilding cost of their property. So how can you help your client determine the right sum? You can register to use the house rebuilding cost calculator with the Building Cost Information Service, a joint venture between the Royal Institution of Chartered Surveyors and the Association of British Insurers. Alternatively, look for insurers that rate buildings insurance on the number of bedrooms in the property. Bedroom-rated policies automatically provide cover up to a pre-determined limit, eliminating the need for homeowners to calculate the cost of rebuilding their home and greatly simplifying the broker’s job.
The age of a property is also a key consideration as new builds (generally defined as any property less than 15 years old) tend to attract lower premiums. The majority of new and newly converted homes in the UK are covered by a 10-year National House Building Council warranty. As new builds and conversions should have been built to new building regulation standards, the actual cost of rebuild is often less than for older properties.
In addition to the structure, a buildings policy covers all the permanent fixtures and fittings. Policies also generally extend to include outbuildings such as garages, greenhouses and garden sheds. However, not all policies cover boundary walls, fences, gates, paths and drives, so it is important to check exactly what the homeowner is looking to insure.
As the risk of flooding has risen in many areas of the UK, homeowners have become more aware of the benefit of a buildings policy that will help to meet the reasonable costs of alternative accommodation if a home is so badly damaged that the owners cannot live in it until repairs are done. Some insurers include this as standard, while others offer extensions of cover.
When it comes to contents insurance, there is a persistent issue with under-insurance.
It is worthwhile encouraging your clients to be systematic and visit every room – not forgetting the garage, the loft, the cellar, if they have one – and list everything. A lot of insurers provide online home insurance contents calculators, many of which can be printed off in PDF format so that your clients can go home and check their inventory.
In assessing the value of items, it is important that your clients identify valuable items. Most insurers include a reasonable limit for unspecified high risk and valuable items. However, you should check to determine if this limit will be adequate for your clients and whether the single item limit is appropriate.
There are a number of optional covers available to allow you to tailor the policy to meet your clients’ needs. For example, you might assume that accidental damage is a standard inclusion, but it is generally optional.
And finally, contents insurance has become as commoditised as motor insurance, so your clients will probably be driven by price. Do discuss the excess with them and find the balance between what they can manage to pay should they need to claim, against what they want to pay for cover. If they can afford to pay a little more should they claim, this could make a big difference in what they have to pay for the policy.
Kevin Paterson is sales and marketing director of Assurant Intermediary