The worst time to find out your home insurance company might not necessarily be acting in your best interests or in a way that seems either logical or fair is when your bathroom has flooded, but that is where a reader by the name of Enda found himself this summer.
After the flood, his insurance provider immediately kicked into gear and was all over the case in a fashion that left Enda sure he had made the right choice when opting to give them his money in the form of monthly premiums for many years.
The insurer arranged for an emergency plumber to come around, immediately after which there was video call with its loss adjuster and then a visit from a building contractor.
It was, Enda says, “all very impressive in terms of time frames but that was the end of my satisfaction”.
The damage report put the cost of repairs at €16,768 – a lot of money, for sure, but Enda wasn’t overly concerned because he had home insurance cover worth €200,000 and he had been paying his premiums without fail every month for the guts of a decade.
“The loss adjuster has now advised that our house is underinsured – it should be insured for €305k,” Enda writes.
“This is the first that we knew of it. Yes, I’m sure the onus is on us to insure for the full rebuild value, but we thought we had insured for the value of €200,000 and if anything should happen we had cover for €200k.”
That, however, is not how home insurance in Ireland works and Enda’s provider is now reducing what it is prepared to pay by almost €6,000. Enda was – unsurprisingly – shocked.
“We have paid for a €200k premium and we are only claiming less that one tenth,” he writes. “If we had over insured, say to €400k, would [the company] then pay us more than our claim? If we were claiming €300k damage and the company would only pay the €200k, I could fully understand that. That, in my mind, is the cover that we have being paying for.”
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He disputed the offer of 10 grand rather than more than €16,000, but the company wasn’t for turning and “as our main family bathroom has been out of use for nearly two months now, I have accepted the amount, as we need to get the work done”, he writes.
“However, I do want to push further on this and so would love your advice. Do you see merit in carrying this forward? I really do feel cheated. How can something be so one sided? I insure for X, and pay my monthly premium. Our damage is Y, a fraction of the cover of X, and yet the insurance company find some one-side way to not pay the full value of our claim.”
He says that when he has talked about this with family and friends “they were all alarmed and knew nothing of this underinsurance index if you claim. Most of them now have increased their insurance cover, which is a perfect win for the insurance companies, as they receive higher payments.”
While we have sympathy for Enda, we fear there is little that can be done, as he has now experienced a practice that is widespread across the Irish house-insurance sector.
It is caused by the “average clause”. Rebuilding costs have spiralled in recent years – along with so much else – and that means a huge number of Irish homes – possibly close to 20 per cent – are now underinsured.
The Society of Chartered Surveyors of Ireland’s (SCSI) publishes an assessment of rebuilding costs every year and last October’s report suggested that costs had jumped 12 per cent in a 12 month period.
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But that is not even the half of it. The society estimated that the minimum base cost this time last year of rebuilding a three-bed semi was €303,212 in Dublin, while the minimum base cost of rebuilding a similar house in the northwest was €225,204 – a difference of more than €78,000.
In the 2016 report the SCSI put the rebuild costs for the average three-bed semidetached house at €181,071 in Dublin and €117,645 in the northwest.
So if you are still paying for the same level of cover on that Dublin semi that you were in 2016, you might be underinsured by over €120,000.
According to Central Bank figures of those who had their claim reduced due to underinsurance in 2021, the average reduction in the claim payment was about 19 per cent and the problem is only likely to have worsened since then.
The regulator did write to all the home insurers in the State asking them to get in touch with their customers to alert them to the issue of underinsurance and we can only assume Enda’s provider did as it was told.
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He may not have understood the significance of the letter – or he may not have read it. But the unfortunate reality is being underinsured can hit you hard even if you are not making a claim for the full amount.
So if your home has been insured for €200,000 to rebuild, and the true cost is now closer to €400,000, your home is only 50 per cent insured and if you need to make a claim for €50,000, even though you have total cover of €200,000, the so-called average clause is applied so you’ll only be eligible to claim back €25,000 – leaving you with a shortfall of €25,000.
If after reading this you are afraid that you too might be underinsured, the SCSI house rebuild calculator will give you typical rebuild costs across for a selection of property type.
If you notice a big discrepancy, we would strongly urge you to contact your insurance company sooner rather than later. It does mean they will get more of your money but it is in your interest to make sure you have the right level of cover – or risk being very heavily penalised should something go wrong.
