Home insurance isn't set in stone

With rebuilding costs still low, it pays to make sure your house isn’t over-insured

ARE YOU PAYING too much to insure your house? The chances are that you are, particularly if you haven’t reviewed your policy in years and have steadfastly stayed with the same company – either out of a misguided sense of loyalty or out of sheer laziness.

While the cost of rebuilding a house increased by 1.5 per cent in the last 12 months according to recent figures published by the Society of Chartered Surveyors Ireland (SCSI) – the first increase since the property boom came to a shuddering halt in 2008 – costs are still nearly 25 per cent lower than they were when the bubble was at its most bubbly.

This marginal increase means that the cost of rebuilding a typical three-bedroom semi in Dublin has increased by €9 per square metre, or from €167,105 last year to €167,960 this year – an increase of approximately 0.52 per cent.

In Galway, the cost of a similar rebuild has increased by €22 per square metre, or from €125,115 last year to €127,205 this year – an increase of approximately 1.67 per cent. In Waterford the increase was almost 2 per cent.

Unsurprisingly, Dublin has the most expensive rebuild costs across all house types. In the capital, the cost of rebuilding a four-bedroom detached house has increased by €11 per square metre to €209,804, while a two-bedroom terraced house has seen such costs climb by 0.5 per cent to €128,030.

Andrew Nugent of the SCSI says the latest increases are not due to builders charging more for their work – they are down to changes in building regulations. It costs more to provide the improved insulation now required for walls and floors, and to ensure air tightness. There are also increases across the board in materials, VAT on professional fees and other input costs into the construction process, including oil.

“The falls in recent years generally spelled good news for homeowners, in that they could expect a pro-rata reduction in their house insurance premiums,” he says. “However, it now appears we have come to the end of that trend and some owners may face very modest increases.”

Prices may have risen over the last 12 months, but they are still down 24 per cent from 2008. That year the cost of rebuilding a three-bedroom semi in Dublin cost €208,810, €33,000 more than today, while the price in Galway was €151,905 – nearly €27,000 more than now.

If you haven’t made any modifications since the boom times, your premiums should also have fallen. But they do not fall automatically and people have to actively go looking for the savings.

While the house insurance industry is very quick to moan about increased costs and the impact that serious floods and freezes are having on policy prices, it is very quiet when it comes to things which have a downward effect on premiums.

Back when the cost of rebuilding was on a perpetually upward curve, insurance companies used to index-link the amount insured so that policies automatically increased in line with inflation each year. They did this to ensure that people were not under-insured.

However, when inflation turned to deflation and rebuilding costs plummeted, the same companies were not so helpful – few if any started automatically reducing the building sum insured as the costs associated with rebuilding fell.

This has led to many people being over-insured. The sums involved may be small – around €100 a year – but that €100 would surely be better off in your pocket than that of some massive international insurance company.

The onus, then, is on homeowners to make sure they are not being over-insured. It is not as easy to do this as it sounds, because there are no universally accepted guideline prices for rebuilding costs.

The SCSI does publish a useful guide on its website – scsi.ie– that offers step-by-step instructions on calculating the minimum amount for which you should insure the structure of your house. This, however, cannot factor in all variables. It is grand if you are trying to price the rebuilding costs of a 1960s estate house in south Dublin, but if you are trying to work out how much it will cost to rebuild an 19th century terraced house overlooking the Royal Canal it will come up stumped.

There are other problems associated with assessing rebuilding costs. Some banks insist that the amount they, as the mortgage providers, believe it will cost to rebuild your home is set by a panel of their own valuers.

If, for example, you’re an Ulster Bank customer and want to reduce this value, the bank will ask you to get an updated reinstatement value, or RIC (Recommended Insurance Cover). It is only when you have a lower valuation from the bank’s own valuers that it will accept that the rebuilding cost of a house has dropped.

If you have to pay a valuer to carry out an assessment every time you want to reduce the rebuilding cost on your insurance policy, that will most likely cancel out any savings you may be able to make from a fall in your premiums, which would make no sense.

Another thing that makes no sense is that some banks base their valuations on the Department of Environment House Construction Index as opposed to the surveyors price index. At a glance the difference doesn’t seem substantial, but there is a key distinction: the surveyors’ guide is based on what is actually happening in the market, while the DoE index is based on “list prices”, or the aspirational prices the construction industry would like to charge but can’t because of current market conditions.

When it comes to house insurance it is also important to bear in mind the impact that lowering the rebuilding portion of your cover might have on the contents insurance element of your policy. Many policies are worked out as a percentage, so if you reduce the rebuilding cover, the contents cover will fall too. This is not a good idea. According to the National Consumer Agency, people tend to be over-insured for buildings insurance and under-insured for contents.

The SCSI has made a portion of the work involved in establishing a fair price easier in recent weeks with the launch of a new free iPhone and Android app and online calculator. Nugent says the app will be of “great assistance to owners in helping them to calculate their rebuild costs in a speedy and straightforward way”. It just might save you a few bob.