“Many homeowners fall foul of an error of insuring at market value rather than at rebuilding cost. According to the Building Cost Information Service, of those people that buy buildings insurance based on market value, 58% of their properties are over-insured. This costs the insured an average of £140 in excess premium.
“People also run the risk of under-insuring. Some insurers have a penalty clause that could reduce cover further in this event. While insuring for less might mean that homeowners reduce the premium for their buildings insurance, it also means that they run the risk of a claim not being settled in full.
"The BCIS estimates that 21% of homeowners are under-insured with an average shortfall in cover of £40,000. This could be disastrous in the case of serious fire or flood damage to their home.”
Paterson recommends that brokers should include an additional question in their customer relationship programmes covering market value versus rebuilding costs, pointing out that a quick comparison with a bed-rated policy should highlight any significant discrepancy in premium.
He concludes:
“Only a qualified surveyor can really provide an accurate rebuild cost, and right now I doubt that many homeowners would want to fork out for the cost of a professional survey. A safe bet is to look at bed-rated policies to ensure your clients buy the right level of cover at the right price.”
