At a glance
- The average household now owns roughly £35,000 worth of possessions, but many remain significantly underinsured
- Underinsurance can cause major headaches for customers, including settlements being reduced or additional premiums being requested
- From estimating the value of contents to conducting regular reviews, we give guidance to help customers reduce the risk of underinsurance
With many households having spent hundreds, if not thousands of pounds on presents, the risk of underinsured contents insurance policies typically increases around the Christmas period.
The Association of British Insurers estimates that the average household now owns £35,000 worth of possessions, yet a failure to properly value contents means many could be dangerously underinsured.
Different insurers have different ways of dealing with underinsurance (see boxout for an explanation of Zurich’s approach). Depending on the circumstances, it could lead to customers having their claims settlement reduced or being asked to pay an additional premium. In certain circumstances, it could even lead to the claim being rejected altogether.
However, by following a few simple steps, customers can avoid the risk of major underinsurance.
1. Don’t underestimate the value of your contents
One of the most common causes of household underinsurance is homeowners simply underestimating the value of their possessions. It is important that customers don’t focus simply on high value items, as the cost of replacing things like curtains, kitchen equipment and light fittings can add up quickly.
The value of most items can be found online, while unusual or high-value pieces like jewellery or antiques will benefit from a professional valuation. These professional valuations are particularly important, as many owners of antique or vintage items have never had them valued, leaving the potential for significant underinsurance.
While valuing possessions doesn’t need to be labour intensive, it can help to go from room to room to make sure nothing gets missed, without neglecting commonly forgotten areas like attics or any sheds, garages or outbuildings that may be included in the policy.
In some cases, policyholders may even be tempted to underestimate the value of belongings in the hope of securing a cheaper premium. However, to be sure of full claims settlements and to avoid paying additional premiums, it is essential to declare accurate and up-to-date contents values.
2. Add expensive new purchases to your policy
Around this time of year, it is likely that new high value items will be making their way into homes, and it is important that these newly acquired items get added to policies as soon as possible.
Failure to do this can mean that new possessions won’t be included in policies or accounted for should any loss occur. This isn’t of course necessary for every new item, but a succession of higher value purchases should always prompt customers to notify their insurer about a possible need to increase contents sum insured.
3. Carry out regular reviews and valuations
Perhaps the best way of avoiding underinsurance is carrying out regular reviews, at least every couple of years. Even if policyholders haven’t made any major purchases, most households are regularly acquiring new possessions and the value of these items is always changing.
Prices of some high value items like jewellery, antiques and artwork are particularly susceptible to price fluctuations and underinsurance. External factors, such as gold and silver value fluctuation, for example, can quickly change the value of jewellery, leaving policyholders over or underinsured. In addition, items are often inherited from family members, meaning that the true value of potentially valuable items is not known.
Jewellery is also often purchased abroad, where original prices can be significantly cheaper than the cost to replace in the UK. For any item purchased overseas, jewellery or otherwise, exchange rate fluctuations can also influence the current value of possessions.
Major life events, such as getting married or having a child, should also prompt customers to reassess their sums insured to discover whether current cover remains suitable.
4. Understand your policy details
As well as providing accurate and up-to-date valuations, it is important for customers to be clear on the detail of their contents insurance policies and definitions, and any exclusions or limits that may exist.
Inner policy limits should be of particular note. For example, many policies will specify a limit for valuables and each insurer may use a different definition for ‘valuables’. Understanding these definitions will allow customers to make informed decisions on how to group specific items and how to arrive at suitable sums insured. Policies may also include certain inner limits for categories of items, such as electrical goods, which if exceeded could cause underinsurance.
Customers should also be clear on whether they own any items for which they may be required to provide evidence of ownership or value in the event of a claim. For example, many insurers will require evidence in the form of a professional valuation, for all items valued at more than £5,000.
There can be many reasons for households becoming underinsured, however regular and accurate valuations and an understanding of basic policy details will go a long way towards minimising the risk.
For more information on the issues discussed in this article, please get in touch with your local Zurich contact.
Zurich’s approach to the Insurance Act explained
The Insurance Act 2015 introduced a ‘duty of fair presentation’, which clarified what an insured must disclose to an insurer and what an insurer needs to know about its insured.
Under the Act, if an insured’s failure to make a fair presentation is not deliberate or reckless and the insurer would have charged additional premium if it had been aware of the relevant material facts, the insurer has the right to reduce the amount to be paid on any claim during the period of cover in proportion to the amount of premium that would have been charged.
Zurich has ‘opted out’ of the proportionate reduction of claim remedy under the Act. Rather than reducing a claim proportionally, Zurich has instead decided to charge the additional premium that would have been charged, had all the relevant material facts been known, and pay any claim(s) in full.
Zurich believes that this additional premium approach should, in most situations, be more favourable to customers when compared to the proportional settlement remedy under the Act.