Can You Afford the Luxury of Underinsurance?

When you have worked hard to afford life’s finer things, having theft, fire, flood or other types of damage take those away from you can be hugely distressing. Many high net-worth homeowners have a sentimental attachment to possessions and cannot put a value on this, and therein may lie a problem.

High net-worth homeowners show far too much reticence in assessing their property’s real value and, whilst high net-worth underinsurance has always been an issue, the insurance industry now believes it is worse than ever.1

Global supply chain pressures have fuelled raw materials’ price hikes, contributing to worrying inflation and subsequent increases in labour costs. Consequently, the cost of rebuilding a property has risen considerably.

Around 587,000 high net-worth homes were thought to be underinsured in 20222, because the rebuild cost had not been correctly assessed.

Furthermore, many luxury homeowners made pandemic property enhancements, such as extensions and new installations, but have not advised their insurer of these.3

Underinsurance also relates to contents, with many high net-worth homeowners failing to consider the value of carpets, curtains and furnishing, solely focusing on possessions. Casting an eye around the property, room by room, and assessing the value of absolutely everything, can make this very evident.

Other forces have been at play, too. The best returns on investment have been found via luxury good purchases – Rolex and Swiss watches, gold, diamonds and luxury handbags, The demand for such items has seen hikes in their value. The UK price of Rolex watches increased by up to 7% during 2022; Chanel bags have more than doubled in price since 2016; and the price of a Medium Chanel Classic Flap Bag rose from $4,900 to $10,200.4

The diamond price hit an all-time high in 2023, pushed up by a reported 29% increase in demand in 20215, to a level 85% higher than in 1986.6 Major jewellery brands saw considerable increases in their range’s value by as much as 15%. The average market value of designer jewellery has increased 200-300% since 2010, and even a 1oz gold chain doubled in value in the past 10 years.7

Despite such rises, many homeowners have not had items revalued in the past five or 10 years, leaving such possessions underinsured.

Underinsurance is a huge risk for any homeowner, as it can lead to a vastly reduced claims payout, when an insurer realises it exists and applies the rule of ‘average’. This reduces any claims payout value – not just one for total loss – by the percentage equating to the policy’s underinsurance. Therefore, if you were only insuring for 75% of the actual value of what you own, you would only have 75% of any claim paid. An insurer could also decline a claim completely.

Do not allow underinsurance to affect your luxury lifestyle. Contact your broker and ask for help in reviewing your sums insured for all your property and possessions. Get this in order today, and you should not be paying for your mistakes tomorrow.