Certus Mortgage: Getting buildings insurance sums right

Buildings or home insurance is probably the most natural general insurance product for mortgage brokers and intermediaries to sell. For homeowners, buildings insurance is compulsory and will always come up as part of the mortgage arrangement process. While contents insurance is optional, it is often packaged up together with buildings insurance, generally representing better value for the homeowner.

And value is more important than ever. The average quoted premium for an annual buildings insurance policy has risen for the eight successive quarters, taking it to a new high of £218.53, according to the AA’s benchmark British Insurance Premium Index.

So why the rise in buildings insurance if house prices are still falling, I hear you ask? Clearly claims experience has an impact on pricing: the harsh winter led to an upsurge in claims for buildings damaged by snow and ice, and flood damage continues to represent a real headache to insurers. However, the cost of rebuilding and repairing homes to the higher standards required by building regulations has been steadily rising – and it’s the cost of rebuild, not the market value, that is the sum insured -- and the most that an insurer will pay out under any circumstance.

It is the responsibility of the homeowner to get the sum insured right. However, there is a real danger of both over and under-insurance as most homeowners don’t have a clue as to the full rebuilding cost of their property. So how can you help your client determine the right sum? You can register to use the house rebuilding cost calculator with the Building Cost Information Service, a joint venture between the RICS and the ABI. Alternatively, look for insurers that rate buildings insurance on the number of bedrooms in the property. Bedroom rated policies automatically provide cover up to a pre-determined limit, eliminating the need for homeowners to calculate the cost of rebuilding their home and greatly simplifying the broker’s job!

The age of a property is also a key consideration as new builds (generally defined as any property less than 15 years old) tend to attract lower premiums. The majority of new and newly converted homes in the UK are covered by a 10-year National House Building Council warranty. As new builds and conversions should have been built to new building regulation standards, the actual cost of rebuild is often less than for older properties.

In addition to the structure, a buildings policy covers all the permanent fixtures and fittings such as baths and toilets, fitted kitchens and cupboards. Policies also generally extend to include outbuildings such as garages, greenhouses and garden sheds. However, not all policies cover boundary walls, fences, gates, paths and drives so it is important to check exactly what the homeowner is looking to insure.

As the risk of flooding has risen in many areas of the UK, homeowners have become more aware of the benefit of a buildings policy that will help to meet the reasonable costs of alternative accommodation if a home is so badly damaged that the owners cannot live in it until repairs are done. Some insurers include this as standard, while others offer extensions of cover. It’s worth checking whether your client wants this level of cover to ensure you get the right quote for them.

Tips:

Bedroom-rated policies are often cheaper, and many people do not know what rebuild value they need to insure for.

Always get two or three quotes – no one insurer is competitive across every postcode, nor will they cover all postcodes.

Be sure to check the age of the property as some insurers are more cost effective than others for new builds and conversions.

Check whether the buildings cover extends to boundaries and outbuildings