Warning: many homes may be underinsured amid spiralling building costs

One in six claims made to a leading home insurance provider is not being paid in full because policyholders have not factored in skyrocketing building costs when they renew their premiums, new research shows.

Fewer than one in 10 people who have been warned by their insurer that their property may not have sufficient cover has taken any action, the study from Aviva suggests.

“We are seeing evidence of underinsurance in around 16 per cent of claims received to date and we expect that this figure will continue to rise unless action is taken,” said Aviva spokesman Billy Shannon. “While the increased rates [in building costs] are considerable, it does not necessarily mean that premiums will increase by the same amount. We would encourage homeowners to take the time to review their cover and make the necessary adjustment to ensure they are fully covered.”

Aviva warned homeowners that they are at risk of being underinsured in the event of a claim and said that it was increasingly seeing evidence that the sums insured are inadequate when dealing with customer claims.

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All home insurance policyholders are due to receive a letter in the weeks ahead as insurers seek to raise awareness of the risks of being underinsured. But homeowners have been slow to react so far, with just 6 per cent of the four in 10 who have been contacted to date increasing their cover, according to the survey of 600 homeowners conducted by iReach Insights.

Customers who are underinsured and who make a claim under their policy may not be fully protected and may not receive the full amount necessary to rebuild or repair their home.

If a home is insured for €300,000 and the current rebuild costs of the property is €400,000, it is underinsured by €100,000 or 25 per cent. If a claim is made where the damage is estimated to be valued at €100,000, the policy holder will only receive €75,000 because it is 25 per cent underinsured, Aviva warned.

The home does not have to be totally destroyed for the impact of underinsurance to impact the homeowner.

“Anyone who has ever had to make a claim on their policy will appreciate that it can be a stressful time and, as insurers, we want to avoid having to add to the stress by telling our customers that they are underinsured,” Mr Shannon said.

The research found that 60 per cent of people have not yet received a letter from their insurer.

Of those who have received a letter and not yet acted, 20 per cent said they simply could not afford to pay any more. This is a bigger issue for households with children, where the percentage rises to 38 per cent, and among those in the 35- to 44-year age bracket, where one in three say affordability is an issue.

A further 40 per cent said that, based on a policy review, they were satisfied that there sum insured was already sufficient while a third said it was on their to-do list but that they just hadn’t got around to it.

More than one in five either don’t know how to calculate the correct amount or are not aware of the financial exposure of being underinsured, while nine times more men say they are willing to take a chance that nothing will happen, than women.

Homeowners are being advised to use the SCSI’s house rebuilding cost calculator that is available on its website to satisfy themselves that they are fully covered. Home insurance customers may increase their cover at any time and do not have to wait for their insurance renewal date to do so.

*This article was amended on April 14th, 2023