At the end of April the rules regulating how domestic home insurance policies are calculated changed.
Previously, most policies were based on the size of the dwelling, but from the 28th of April, the policies of major home insurers changed, so that the sum insured is now based on how much the property would cost to re-build.
This will mean potential additional costs and risks for the homeowner.
For many homeowners this could have far-reaching implications and mean that some could end-up substantially under-insured.
Graham Matthews, Oceania Chairman of the Royal Institution of Chartered Surveyors and director of property consulting firm, Hampton Jones, says “These changes may appear insignificant, but anyone with home insurance should beware. Someone who is currently insuring a small, but well-designed and appointed house may find that they are under-insured under the new rules, especially if construction costs go up.”
The approach that the insurance companies are taking will require homeowners to provide re-instatement construction cost estimates, so that their property is insured for the correct amount, and this will need to be updated at least every two years to ensure the value of cover keeps pace with rising construction costs.
“There is some confusion between property value and reinstatement cost” states Matthews.
“Getting a property valuation will provide you with an indication of what a property might be worth if sold, but this is completely different from how much it would cost to re-build. Someone taking insurance based on open-market value would risk insuring for a higher sum than necessary.”
The risk of providing an accurate re-instatement cost is firmly on the homeowner, and for larger or more complicated houses this may even require the services of a Chartered Quantity Surveyor.