Figure it out to avoid floods of tears

Thousands of UK homeowners have not figured out what their possessions are actually worth, leaving them typically either underinsured or overinsured. In fact, only one in ten homeowner properties is likely to be insured for the right figure.

The degree of underinsurance can vary, and wealthy individuals, owning large homes and expensive items such as jewellery, artworks, antiques, expensive watches, designer handbags, costly clothing collections and other assets such as wine or whisky cellars, are particularly at risk. In fact, there are a major worry for insurance brokers. 23% of insurance brokers actually feel all High-Net-Worth individuals are underinsured.

Why does underinsurance exist?

The reasons for such underinsurance (defined as the gap between the declared value of possessions when taking out insurance or renewing a policy and the real value of those items) are numerous.

Often, it is down to the homeowner not having accurately calculated the value of what they own. This could be because they have never carried out a systematic audit of possessions or room-by-room tot-up. It might be that they have not commissioned regular valuations of jewellery, watches or other precious items and that original expert valuations are now vastly out-of-date.

Sometimes, it is because a homeowner does not proactively raise their insurance limits to keep premiums stable. Others have created gaps in coverage because they have not had an expert insurance broker guide them through the process. They have simply ticked boxes on an online insurance sales form, buying a standard home insurance policy and being unaware of clauses and exclusions that impact their luxury portfolio.

Some can be caught out by single-item limits that exceed the actual value of an item they own. A much larger proportion of those caught out by underinsurance at the present time, however, have not kept an eye on economic trends.

Many homeowners have based their sum insured on their home’s market value rather than the cost of rebuilding it in the event of a major incident. If a storm caused significant damage, the home might need to be rebuilt from the ground up, including architects’ fees, labour, contractors, and rubble removal. New materials would also need to be purchased.

All these factors add to the homeowner’s original market value, and it is this larger figure that should be the sum insured on the policy. Experienced brokers advise clients that valuations not accurately factoring in all of these costs are damaging. Similarly, valuations of possessions that are five or even three years old do not reflect current market prices for items such as jewellery and watches. Pockets of underinsurance can emerge through a possessions audit.

Any home insurance claim, regardless of size, would be impacted if the insurer discovered underinsurance. Even if the amount claimed is well below the overall declared sum insured, the payout will be reduced by the degree of underinsurance. For example, if your insured sum is only 70% of the actual value of your home, you would only receive a 70% payout of any insurance claim.

If the insurer believes you have deliberately manipulated figures to lower a premium, they have the right to cancel the policy and pay out nothing.

Weather risks that expose underinsurance

The most likely situation that could catch you out, if in this position, is flooding. Latest Government figures suggest 6.3 million homes face a flood risk. Homeowners focused on purely river or sea flooding should beware. There are almost twice as many homes with a risk of surface water flooding (4.6 million) as there are homes at risk of marine or river flooding (2.4 million).

Between April 2023 and March 2024 alone, the UK experienced 13 named storms. Storms Babet, Ciarán, and Henk issued 750 flood warnings (5 severe). There is much to consider, even before considering summer flash floods with their random nature. Anyone, anywhere, can suffer a property catastrophe that exposes their underinsured status and inability to replace lost items.

How to tackle an underinsured or over-insured situation

If you have little or no idea what your home’s rebuild cost would be or what the value of your possessions is, it’s time to take action. You can start by walking around each room and noting the value of all you would need to replace, from carpets and furnishings to fixtures, clothing, electrical items and leisure equipment.

Assessing a ballpart rebuild figure for your home can be done by using a service such as the Building Cost Information Service (BCIS), but a preferable route to follow, particularly for High-Net-Worth homeowners, involves working with a broker. Complex situations regarding covering possessions can be fully discussed, and the best insurance strategy can be determined. Specific items can be given their own insurance protection, and any ‘grouping’ of valuables which leaves you exposed to losses can be rectified.

A broker can also help you commission a specialist rebuild cost survey, tailored to your individual property alone. This will identify any underinsurance but could save you money by highlighting over-insurance.

The risks of having underinsured homes and possessions are significant, so do not turn a blind eye to it. Thinking a disaster will ‘ever happen to you’ is becoming increasingly unsound reasoning in an age of climate change. Take stock of your situation and figure your sums out today by getting in touch with a broker who can assess the unique risks associated with your assets and recommend bespoke policies tailored to your needs. If not, you could experience significant losses.

Talk to a member of our team today on 01274 515747 or submit an online enquiry form, and we’ll get back to you.