Due to the financial downturn, builders are becoming more competitive with their prices, so for the first time in 15 years, house rebuilding costs have dropped.
This pattern is evident in the current figures posted by the Society of Chartered Surveyors (SCS), which show that house rebuilding expenses have fallen by between four and five per cent, depending on the UK area.
However, homeowners have been warned that just because reconstructing a home after a disaster such as a fire will cost less, this does not mean that home insurance premiums will lower in price too.
Factors influencing premiums
Andrew Nugent from the SCS predicted that premiums will be pushed downwards, but stated that a 5% drop in rebuilding costs will not necessarily link to a 5% decrease in the cost of a premium.
Michael Horan from the Irish Insurance Federation (IIF) agreed with Nugent and said that even though the sum insured may fall due to cheaper building prices, there are other issues that affect home insurance costs.
“Ultimately premiums are dictated by the cost of claims and household premiums are generally on an upward trend at the moment, after five years of falling premiums.”
Horan noted that last August the insurance sector suffered from the “most serious flooding event” recorded, and with the recession, burglaries have soared. As a result household claims have too flooded in, resulting in higher insurance rates.
Horan stated: “If your sum insured comes down, that obviously will have an effect on the premium because the rate is being applied to the sum insured.”
As a result, homeowners have been advised to check that they have the suitable insurance policy adequate to their needs.
The SCS explained that if a homeowner insures their property for £250,000, but the total reinstatement cost is £340,000, they would only receive £250,000 to rebuild the house in the event of a total loss. Therefore, the insured would be left having to pay the balance of £90,000 themselves.
Therefore Horan noted: “It is your responsibility to set your building sum insured. It’s important that it’s adequate, as it is the most that would be paid in the event of loss.”
“It is essential that you reassess your level of cover every year, based on current rebuilding costs, making allowances for any improvements or extensions that you may have made since your last renewal date,” the SCS advised.
Calculating the correct measure of protection
Therefore, insurance firms have stated that it is a good idea if property owners calculated the minimum value of an insurance policy needed for their house every year when renewing the cover.
“We are also advising our policyholders to review all their sums insured carefully at renewal to ensure that the buildings sum insured is sufficient to rebuild their house and that the contents sum insured is adequate to replace their contents as new,” a home insurance firm stated.
Horan pointed out that if a homeowner is over insured then they are within their rights to request that the insurance firm reduces the sum insured to the correct amount.