Mounting pressure

A generation ago, mums were happy to pour a cup of Ariel, Persil or Daz into the top of their washing machine and leave it at that. A stroll down the aisle of any supermarket today shows how much the weekly wash has moved on. The detergent industry has convinced its customers that basic washing powders are simply not good enough. They need added fabric softener for comfort and built-in bleaching agents to shift stains. The public has been up-sold into an era of hi-tech laundry.

It may sound a strange comparison, but household insurance could do with its own ‘liquitabs’ and ‘powerballs’. The irony here is that the stains that need shifting are not the imaginary ones of detergent advertising, but the real life blots of homes that simply don’t
have enough insurance cover.

The evidence is clear. Marks & Spencer Money conducted a study in 2005 which involved walk through surveys and valuations on more than 50 properties. On average each home was one-third underinsured on its contents.

The wealth of the nation is clearly growing. Home contents increased in value by 56 per cent in the decade to 2005, according to research by the Centre for Economics and Business Research.

Home entertainment has seen huge changes, for example. State of the art plasma TVs can cost more than a small car. Steve Winn, of the Private Client division of Bartlett Insurance Brokers in Leeds, says: “We have some clients with home cinema kit worth more than £50,000.”

The British Insurance Brokers Association (BIBA) says that insurance is not keeping up with the growing wealth of the nation. There are now 20,000 claims each year for theft or loss or damage to possessions that are worth more than the typical £1,000 single item limit.

Graeme Trudgill, of BIBA, says: “There are well over 700,000 high net worth individuals in the UK and, within three years, this is expected to increase by around 25 per cent. However, as their wealth increases, many people are staying with their current home insurance policies, which means they could be underinsured and need a specialist policy.” Steve adds: “Underinsurance is a problem across all sectors. People do underestimate the value of their possessions.”

According to Sandra Guard of CCMH Insurance Brokers in Guiseley, West Yorkshire: “The psychology of the client is important. Underinsurance is a difficult word. Clients can assume you’re just trying to get a higher premium or that the insurer is looking to wriggle out when it comes to a claim. I always present this topic as more about ‘avoiding problems if you have to claim’.”

Part of the problem comes down to price. Customers still look at the cost of insurance first and think about the scope of a policy second, if at all. Some brokers find the easiest option is to follow their lead.

The most recent BIBA Partnership survey found 71 per cent of brokers said price was their main reason for placing business with an insurer; breadth and quality of cover was the next highest score, but at a mere 13 per cent. It needs bold brokers to challenge the cycle of underinsurance.

Regular valuations can help, especially in the area of art and antiques. But it is not always straightforward. Steve says: “There is a cost to the valuation process. And I don’t think we’ve ever done a building or contents valuation that hasn’t put the sum insured up, so it can be a hard sell.” Brokers can also use client newsletters and renewal communications to warn of the dangers of inadequate cover.

Sandra says home visits are essential to help understand the client’s lifestyle: “You have to get a sense for their expectations in life. Do they shop at Harrods or Marks & Spencer, because that will have an impact on replacement costs.”

Steve too feels the best way to tackle underinsurance is through a home visit. He says: “When you are sitting down with someone at home, you get a taste for their lifestyle and warning bells can go off pretty quickly if the sums insured seem wrong.” Ultimately, it is in a broker’s best interests to make sure clients are insured for the correct amount. Sandra adds: "We want our clients to be happy if they claim. We don’t want them to be cursing the broker."

The perils of underinsurance

• A lady had a valuable diamond ring stolen. The valuation, eight years old, was for £18,000, which was the sum specified in insurance. The jeweller who originally valued the ring was contacted and updated his valuation to £28,000 – a loss of £10,000 to the owner

• One couple had lived in the same property since marriage, a period of 24 years. A broker visited them earlier this year and found that their contents sum insured had been increased only with inflation over this period. It was £64,000. After a quick walk through the property, the broker asked the couple whether they would be happy with a cheque for £64,000 today in return for everything in their home. This helped focus their minds and, after further work with the broker, the sum insured was increased by a further £20,000

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