With rising inflation impacting on construction costs, how do you check to make sure you have correctly insured your home to avoid hidden surprises should you need to claim on your insurance?
We have already seen a rise in inflation due to price pressures in the global economy coupled with the global impact of the war in Ukraine. dummyAccording to the ESRI, inflation in the Irish economy is expected to surge to 8.5 per cent or even higher in the coming months.
This is especially important in the construction sector, which has seen both materials and labour costs rise. The dummyCSO advised in February that there were significant increases in building materials such as cement (up by 11%), timber (increased by 64%), electrical fittings (up by 18.5%), plaster (up by 30%) and glass (which has seen a 10.7% hike in prices) over last 12 months. In addition construction labour costs are dummyalso expected to rise by 4.4% in the next 12 months.
Inflation’s Impact on Rebuilding Costs
In a recent article in dummythe Irish Independent, The Society of Chartered Surveyors (SCSI) have reported that house rebuilding costs have increased by up to 23% over the last five years. The SCSI have provided the following guide rebuilding costs based on 2021 cost levels - €218,000 to rebuild the average semi-detached house with three-bedrooms in Dublin. In Cork, the price is €175,000 and in the North West, it is €140,000. These are guide prices, further below, we recommend a tool that will help homeowners more accurately calculate rebuilding costs.
How does this affect me and my home insurance?
It is easy to get confused between market value and rebuild cost when it comes to insurance. The market value is what the market dictates it will cost to buy someone’s home. However, this can be different to what the cost is to rebuild a house should it be completely destroyed by a fire, for example. The amount a customer has their home insured for is known as the “sum insured” and it is what the insurance company will put aside as budget for repairs at today’s prices for materials and labour. This is the maximum amount that insurers will pay regardless of the rebuild or market price of the property.
Due to this unexpected and sudden inflationary increase, customers may now find that their property is underinsured. Underinsurance is where the current rebuild (or sum insured) estimate in their insurance policy may not reflect the current costs of repair or rebuilding at today’s rates.
Where a customer is underinsured, there can be several consequences. The claims payments or settlement may be reduced and the ‘average’ clause applied. This means if the customer doesn’t have adequate sums insured , it can reduce the settlement by the same percentage by which the asset is underinsured. For example, if your house was insured for €150,000. The insurer’s assessment, based on guidance from the Society of Chartered Surveyors Ireland and industry knowledge, is that the rebuilding cost is actually €200,000. Therefore, you were underinsured by €50,000, which is 25% of the estimated rebuilding cost. The insurer will proceed to handle the claim on the basis that they will pay for 75% of its cost and you will pay for the remainder.
Two steps you can take to avoid this
Where possible, Allianz plans in advance for this with index linked policies. Index linking is a measure to use to address and aid in preventing underinsurance. Ultimately, this is a safeguarding measure to ensure that our customers receive a fair settlement in the event of a valid claim. Customers are encouraged to check the sum insured on a regular basis.
However, we would recommend that you understand this for yourself, so you are in a better position to calculate correctly and accurately the rebuild cost of your home. Here are two simple steps to do so:
1. dummyHouse Rebuild Calculator: This tool is available from the Society of Chartered Surveyors Ireland to help consumers understand this gap cost. You simply put in the basic measurements, location and key home details. It will then calculate the rebuild cost and provide an estimate. This is an estimated cost, but it will then show you if you have calculated the rebuild cost of your home correctly to compensate for hidden costs.
2. Then visit MyAllianz to see the rebuild cost in your next renewal. There, you can adjust the insured amount and make sure you have correctly insured your property to minimize the risk of the inflationary gap impacting on any future claim.
Ultimately, we want to help enable our home insurance customers to fully inform themselves and take steps to avoid being caught due to current and future inflation levels.
You can find out more information regarding underinsurance by clicking here.
Allianz p.l.c is regulated by the Central Bank of Ireland. Standard acceptance criteria apply.