Household insurance bills set to soar

Hard-pressed householders, already facing higher bills for many products and services, are in for another nasty surprise when the next home insurance bill drops through the letter box.

The State's largest property insurer, Royal & Sun Alliance, signalled last week that the cost of its home insurance premiums is set to rise by around 30 per cent, taking its average annual premium from £200 to £260 (#254 to #330). Hibernian, the next largest player in the market after Royal & Sun Alliance, with a market share of around 24 per cent, says it too is in the process of implementing premium increases of about 25 per cent.

Between them, the two companies account for more than half of the Republic's home insurance market and, where they lead, others are likely to follow.

Both companies blame a combination of spiralling costs and increasing weather-related claims for the price hike. Royal & Sun Alliance says that claims inflation is running at between 13 and 15 per cent, driven up by big increases in building rates and the cost of materials; fees for professional services such as engineers, architects and surveyors; and the cost of alternative accommodation when houses are being repaired or rebuilt.

Climate changes have also been adding to insurers' woes. In the past four years, there have been three serious weather-related incidents in the Republic. Claims from the widespread flooding seen last November, when the State had its wettest 24-hour period since records began in 1839, have been estimated at £40 million by the Irish Insurance Federation (IIF). Already, more than 6,000 claims have been made, the bulk of them by households.

The Christmas storms in 1998 cost the industry £44 million in claims, while the 1997 storms saw it pay out some £64 million. The upshot of all this is that householders are set to face higher bills.

Meanwhile, the widespread under-insurance of both buildings and contents means that many householders are paying too little and could have to increase payments if they are to be assured of full protection if things go wrong.

Householders who are underinsured are at risk of having only a proportion of the claim paid because the property is not fully insured. Basically, homeowners only get what they pay for.

If you own a piece of furniture worth £1,000 and insure it for £1,000 against all risks, you will get £1,000 if it is stolen or destroyed. But if you insure it for £500 you will only get that sum if it is taken or damaged.

The Insurance Ombudsman, Ms Caroline Gill, says this issue is the one that arises most frequently in the cases of household contents insurance that her office adjudicates on.

But if under-insurance is a problem for contents, it is even more serious in the context of buildings cover, where the consumer can end up seriously out of pocket if the property is under-valued for insurance purposes.

For instance, a house insured for £100,000 destroyed by fire could cost £150,000 to rebuild a few years later. But the insurance company will only pay out £100,000 or the amount it is insured for, leaving the homeowner seriously out of pocket.

The under-insurance phenomenon has crept up on many householders, catching them unawares, mainly as a result of rapidly rising construction costs in recent years. While most insurance policies adjusted cover in line with the consumer price index, construction costs significantly outstripped this as the economy boomed, leaving people without sufficient cover.

This year, estimates suggest that building costs have risen by about 14 per cent in the Dublin area. As a result, homeowners should not automatically renew their household insurance cover without reviewing it first and making allowance for higher costs, as well as any improvements or extensions made since the last renewal. If the sum insured has not been increased for more than two years, the cover is likely to be insufficient. Most insurers also insist on a minimum sum to be insured and this figure has been rising steadily of late, reflecting the escalation in prices. Hibernian, for instance, has just increased that sum to £70,000 for all new business, on the basis that it would be difficult to build a house for less.

For those who need to review their buildings cover, help is at hand from the Society of Chartered Surveyors, which publishes an annual guide to house rebuilding insurance. The current guide was updated in July 2000 and provides indications of the cost of rebuilding different types of houses - terraced, semi-detached, detached and bungalows - in Dublin, Cork and Galway.

The costs are calculated on a total loss situation, where the house has been totally destroyed and has to be demolished and rebuilt. In addition to the cost of doing this, the estimates allow for professional fees and for value-added tax.

A typical semi-detached, three-bedroom estate house in Dublin, dating from the 1960s or 1970s, would have cost £101 per square foot to rebuild last July, although this would now be closer to £115, given the 14 per cent rise in rebuilding costs in the capital since then.

But Mr Conor Hogan of the Society of Chartered Surveyors warns consumers that they also need to add on the cost of fitted kitchens, garages, garden sheds, boundary walls and fences.

Focusing on buildings cover should not lead consumers to neglect their contents cover. Insurers say that people are now better off than in the past and, as a result, tend to have more possessions, which in turn are more valuable. But often, they simply renew their insurance without reassessing the increased value of their possessions. The IIF also offers a number of other tips for consumers insuring their contents. It suggests keeping a list of all large or valuable items and retaining receipts for them. It is also a good idea to have jewellery, paintings and expensive ornaments valued and to take photographs of them, while etching an identification number on valuable items could help identify them at a later date.

In addition, consumers should ensure that the policy provides for full reinstatement, or that the insurer will replace old items with new ones to avoid problems with deductions for wear and tear at a later date.