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By Glennon Car & Home Team At Arachas
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Over the last year, many homeowners have faced the unwelcome news of rising home insurance premiums - in some cases by a significant margin. Even those with a claims-free record are not immune. Managing these costs while ensuring adequate cover is crucial. We will explore the reasons behind these increases and how homeowners can effectively manage their premium and potentially reduce their costs.
The Impact of Rising Building Costs
The sharp increase in building costs, driven by inflation, supply chain disruptions, higher demand for construction materials and labour, has significantly impacted home insurance premiums.
Over the last few years, costs for building materials have risen by approximately 45% and labour costs have also increased significantly, leading to higher expenses for repairing and rebuilding properties. These rising costs have put pressure on insurers to adjust premiums accordingly to ensure they can settle all insured claims adequately.
A study by the Central Bank highlighted that over 16% of Irish households were underinsured, likely due to not having updated their policies to reflect current rebuilding costs. As a result, many are exposed to potential shortfalls if they need to make a claim – often significant ones which could be financially catastrophic.
The Role of Insurers and Index Linking
Following these underinsurance findings, the Central Bank of Ireland reminded insurers of their duty to protect consumers against inflationary effects. In response, many insurers have reviewed index linking policies to increase rebuilding sums insured at renewal. This approach aims to address potential inadequacies from previous index linking methods, and in some cases the increase in rebuilding sums insured can be significant. While these premium increases are necessary to protect again inflation and maintain adequate cover, they can be frustrating for homeowners who are already feeling the pinch of rising living costs.
Index linking by insurers can also sometimes lead to over insurance for homeowners who have already updated their rebuild values. In such cases, you might end up paying for more cover than necessary, which can increase your premiums unnecessarily.
Reviewing your buildings cover at renewal is crucial for avoiding underinsurance, ensuring you are not left with large out-of-pocket expenses after a claim, as well as avoiding over insurance and paying too much premium.
The Impact of Underinsurance & the 'Average Clause'
If you’re underinsured, the financial impact during a claim can be substantial. Some insurers apply an "average clause," which reduces the claim payout proportionally based on the level of underinsurance. Where an “average clause” is in place, being underinsured will reduce any claim you make, not just major ones involving the total loss of the home. For instance, if your home is insured for only 80% of its rebuilding cost, the payout on a €20K claim would be reduced by 20% to €16K, leaving you with a shortfall of €4K.
Reducing Premiums While Staying Fully Covered
With rising building costs and the risks of underinsurance, it’s essential to keep your home insurance both comprehensive and cost-effective. By taking certain steps, you can maintain adequate cover while also potentially reducing your premiums. Consider these steps to strike the right balance:
Review Your Rebuild Costs: Regularly check your buildings sum insured to ensure it reflects the true cost to rebuild your home, particular as the rise in building costs could mean you are underinsured. Use tools like the Society of Chartered Surveyors of Ireland Rebuild Calculator to get an accurate estimate or talk to a surveyor.
1. Adjust for Inflation:
Be aware of how your insurer’s index linking might affect your cover. If you find that your sum insured is increasing beyond actual rebuilding costs, consider discussing adjustments with your Broker to avoid over insurance and paying more than you need.
2. Check Your Contents Cover:
Evaluate whether the cover for your personal belongings is still accurate. Over time you may have acquired more possessions, or the value of your existing possessions may have changed. Alternatively, your insurer may have linked the Contents amount to the Buildings Sum which may have unintentionally pushed the Contents Sum much higher than it needs to be.
3. Consider Accidental Damage Cover:
Evaluate whether accidental damage cover is necessary for your needs. This covers you for damage caused by you (as opposed to traditional perils like, Fires, Storm, Flood etc.) and can protect against smaller mishaps, but claims would be subject to a policy excess and may also increase your premium. Weigh the cost against the potential benefits based on your risk appetite.
4. Reassess ‘All Risks’ Cover:
Determine if you still need All Risks cover for items like jewellery, bicycles or sports equipment that are frequently taken out of the home. If the value of these items has decreased, adjusting this cover could save you money. Or if you don’t take the items out of the house there is no material benefit to paying additional ‘All Risks’ cover on them.
5. Implement Security Measures:
Installing and using alarms can often lead to discounts on your premium
The Importance of Speaking to an Advisor
Insurance can be complex, and finding the right balance between adequate cover and affordability is essential. A professional advisor can provide a personalised review of your policy, highlighting areas where you could potentially reduce premiums, but importantly helping you avoid significant losses if a claim arises. By tailoring your cover to your unique needs, you can ensure your home is fully protected without paying more than necessary. For a comprehensive review of your policy and to ensure you’re getting the best cover at the right value, speak with a professional insurance advisor today.
For expert advice and a thorough review of your policy, speak to the Glennon Car and Home Team at Arachas today. Ensure you’re getting the best possible cover at the right value—don't wait until it's too late!
Call (01) 7075874 to talk to one of our Home Insurance Advisors today or click here for more information!
Arachas Corporate Brokers Limited t/a Arachas is regulated by the Central Bank of Ireland. Company registration number: 379157