Inflation and supply chain issues have caused rebuilding costs to soar, yet GlobalData findings suggest the majority of homeowners do not plan to increase the level of cover on their home buildings insurance policy.
BCIS’s House Rebuilding Cost Index has found that rebuild costs have outperformed inflation, rising by 19% from 2022 to 2023. However, as per GlobalData’s 2022 UK Insurance Consumer Survey, only 4.7% of respondents have increased the level of cover on their home buildings insurance policy, suggesting many homeowners may find themselves underinsured.
Additionally, 25.4% of respondents have said that they have reduced the level of cover on their home buildings insurance policy in response to the cost-of-living crisis. This may highlight a possible confusion among consumers, who may be wrongly associating real estate value with rebuild costs. Despite the value of real estate falling, inflationary rises in labor and the cost of materials have significantly increased the costs associated with rebuilding a property, which may be putting households at risk of becoming underinsured.
In the event of a claim, being underinsured may result in financial losses for the policyholder, since the claim could exceed the maximum amount that could be paid out by the insurance policy. This may prove significantly damaging for many households, who are already having their finances negatively impacted by the cost-of-living crisis. Accompanying this, rising interest rates are resulting in higher borrowing costs for households, notably on mortgage interest rates, further straining consumer finances.
Overall, insurers and brokers should see this as an opportunity to increase premiums, but they will first need to educate consumers on the importance of being fully insured.