Story for The Times: Are you finding yourself underinsured?

Insurers are always trying to change the rules of play to avoid paying out properly. We were burgled recently, losing about £10,000 worth of our possessions. The insurance cover we had was adequate for this sum, but they then tried to settle by giving us £10,000 worth of Amazon vouchers. Apart from the fact that what we had lost is not available on Amazon, we are pretty sure that the insurance company wouldn’t accept Amazon vouchers in lieu of cash payment when we put down next year’s insurance premium.

Underinsurance is a concern in health insurance where consumers typically don't know how much their insurer is willing to pay for consultations and treatments. The information is publically available, however, people typically only look at it when they make a claim and can find that their provider won't cover the entirety of the fees charged by a consultant or hospital.

Generally speaking, most brokers and comparison sites won't go into this level of detail with clients, and it only becomes apparent when a claim is made.

What you are describing is called “averaging” and occurs generally with car, building and contents insurance. The premise is simple; your home contents is worth, say, £50000 but you only have a sum assured of £25000 (which is cheaper a premium than the correct sum assured), this means you are sharing the risk with the insurer 50/50 - so on any claim the insurer is only going to pay out 50% of the loss, as you have chosen to cover the other 50%. To avoid this happening inadvertently many home insurance providers do a standard sum assured that is much higher than you need, so generally it’s not an issue. However on some very cheap policies, or if you have some very expensive items in your home, it can become a problem.

This is an age-old problem that is now far more common since the rise of the online insurance comparison companies. Sadly comparison companies rely totally on the information provided by the clients and there is no sanity checking taking place, which a face-to-face or phone-based insurance advice firm would undertake for its customers as a part of its duty to them. From renewal to renewal the information consumers keyed 10 years ago into an insurance comparison website gets transferred across into every years requote - this leads to households not keeping pace with the value of the items in their homes and often misses improvement works where clients have added perhaps bedrooms to their homes or garden rooms but don't update the figures. Insurance purchasers need to be aware that the value of their cover will never be fully paid out if the actual overall value of the items/property hasn't been fully covered for.

Unfortunately we found ourselves underinsured due to the rising inflation impacting the cost of consruction and rebuild values. We had the capacity to undertake the construction ourselves, and we offered the insurer to complete the works as cheap as possible, rather than instructing a main contractor to do the works at a significantly higher price. We were instructed to proceed. When it came to settling the claim, not only did it take 6+ Months, the insurers also capped our claim by the underinsured percentage, and refused to take into account we had saved them significant sums by not using a main contractor. It was a very stressful process and we were very lucky we had the cash reserves and resources to complete the works ourselves.

This is to do with the principle of AVERAGING on claims. The person would have been UNDER INSURED so the claim is being reduced. Can send you technical information if required 0797 4241636

Many building insurance policies offer unlimited cover which would avoid the problem of underinsurance. For contents claims it is very important that an adviser does a full factind of the client's circumstances to ensure the correct levels of cover are in place. Insurance companies have always had proportionality clauses in their contracts so if you have only covered say 50% of what you needed then they will only pay 50% of the claim. I have rarely had any issues with this as i ensure my clients have the correct amount of cover in the first place.