The risks of being under insured.

[ProfJohnL]

On this morning's Don't get done get Dom (Wednesday 16th Jan 2013) there was a salutary tale about household insurance. In brief a family had insured their contents which included some items of gold jewellery a few yeas ago. Unfortunately they were recently burgled and the jewellery was taken and not recovered. They made a claim on their insurance, but his claim was rejected, because they were assessed as being "under insured"

The key principal in this case was that the gold in the jewellery had quadrupled in value since he took the policy out, and that meant the its insured sum was insufficient to cover its current value. This was under insured which could be interpreted to be a fraudulent act.

Not only did the company refuse the claim they actually voided his policy, This had a knock on effect of making them uninsurable as they had to declare the voided policy when attempting to get any new insurance cover of any sort.

In this particular case the company had to back down, because of technicality in a letter they had sent to the policy holder, where they stated they did not think the policy holder had acted maliciously. The Insurance ombudsman's rules only allow voiding where an attempt to defraud is suspected to proven.

This principal has implications for any type of insurance.

So DON'T BE CAUGHT OUT: Insurance companies do look at claims and values, and if they suspect you are under insured then they can refuse to pay out, and can make you uninsurable.

Its worth reviewing your insurance cover, especially for items where the value is volatile such as jewellery, works of art, collections or other investment purchases.

 

[colin-yorkshire1]

hi John, not seen the progam will have to look it up on Iplayer, for the details, but having just changed the house policy I do find your post confusing, as there are only 4 stipulations on ours,
1. total of sum insured,
2. list of all items valued over £1000.
3. contents of out buildings,
4 maximum value of items used away from home.
there is an appendix in the form of a sub list for bikes and sports equipment ect, but most of these are covered by 1.and 2,
I will watch the program to see whats it about and get back.

3

 

[Raywood]

With household policies the cover on most items is relacement as new. If you are underinsured the cover will normally be settled on a basis of a deduction for wear and tear. If it is not even enough to cover this the cover should be subject to avewrage. In simple terms if the cover should be £50,000 and is £25,000 half the value of the claim will be covered. Average should have applied to the claim and the idea of turning it down on the basis of fraud is just not on. For those who know who they were I would make sure I was not covered by them if they treat customers in that fashion. The FSA requires insurers to treat customers fairly and this clearly was anything but that.
I did not see the programme and do not know who the insurer was but I cannot understand how they thought they would get away with that. Fraud has to be proved by the insurer and in the circumstances given would not be possible and indeed it clearly was not possibly leaving them open to a libel allegation. The usual reason for insurers alleging fraud on a genuine claim is people trying to claim far more than the actual value of lost or damaged items. To claim £500 for a £100 item is fraud and would allow the insurer to turn down the whole claim as fraud goes to the heart of the policy.
You do however need to be careful to make sure the sums insured on your property are adequate.

 

[Surfer]

Sounds similar to this post. Under insured and now insurer has cancelled policy. May be £60,000 down.

 

[Raywood]

Sounds similar to this post. Under insured and now insurer has cancelled policy. May be £60,000 down.

Seems to be same problem and could be same company. Under insurance is not fraud as described and the company should be named and shamed and avoided at all costs. A complaint to the Fianacial Services Ombudsman should result in them being put right and possibly a claim for libel.

 

[ProfJohnL]

Hello Ray,
Just to be clear I did state "could be interpreted to be a fraudulent act" not that it was farud. Obviously it depends on the circumstances. I suggest if possible you view the program on BBC iplayer before its expired.

http://www.bbc.co.uk/iplayer/episode/b01g89pp/sign/Dont_Get_Done_Get_Dom_Series_6_Esure/
It was infact the Ombudsmans rules that got this families insurance reinstated and paid out, But it was not clear if the payment was for the insured value or the current market value of the jewelery.

The Insurers representative correctly pointed out that it is up to the customer to advise the insurer of any change to the value of insured items, and that by failing to increase the valuation of the jewelery, but then attempting to claim for its higher valuation could be interpreted as fraud. They gave the highly exagerated example of setting up insurance for a mini, but then claiming for a Rolls Royce.

This situation could apply to any insured item that has volaitile valuations. Its potentially worth having any such items regularly valued and adjusting your insurance accordingly.

 

[Raywood]

I could not get the programme up so have not seen it and do not know the company involved. If the sum insured is insufficient then you will not get a full payout from the Ombudsman but a lower sum depending on what the extent of the problem was. My point is that underinsurance cannot be regarded as fraud as you do not benefit from it and in fact are likely tolose heavily in the event of a claim. Even the term indicative of fraud could be regarded as libelous and could eventualy prove very costly for the insurer and the Ombudsman's decision means that if they do it again and a complaint is made they will just end up paying out again and pay costs to the Ombudsman.
It is vital to try and keep the sums insured up to date but even I after years in the business find it very difficult. Given the fairly low cost of the cover it is probably wise to be a bit over rather than under. Possibly the best idea is to try and estimate the contents room by room and keep the calculation as evidence if it is queried and they would then need to show how they arrive at a different figure if they challenge it.

 

[ProfJohnL]

Hello Ray,
It looks like the Iplayer programme has expired - (Can't understand why BBC limits most programmes to 7 days but ITV programmes are often up for months).
The company in question was Esure, and I believe I have reported the salient facts as revealed in the programme. As I said it was not made clear in the programme if the ultimate payout was for current market value or for the insured sum for the jewelery.

 

[Dustydog]

There was something very flawed with Esure's attitude here. Their policy contains a single article limit on valuables as defined. Just because the goods may be worth £3000 there is nothing to stop the Insured opting for a lower sum insured on the basis he / she wishes to share the risk.
Attempting to claim more than the goods are worth or for goods that did not exist is clearly fraud. As far as I can see that was not the case here.
Pet insurance is the classic case where most Insurers ask the Insured to share the risk as the animal gets older.
The real lesson of course is that cheap is not the best cover. The cheap Insurers tend to cut out loads of areas of cover that a dearer policy will include. I hate this attitude of boasting you are cheapest yet your cover is cr@p.

 

[otherclive]

The real lesson of course is that cheap is not the best cover. The cheap Insurers tend to cut out loads of areas of cover that a dearer policy will include. I hate this attitude of boasting you are cheapest yet your cover is cr@p.

I agree and the Defaqto website shows what each policy contains, soo quite quickly you can compare the cover provided by respective policies indepent of price. It is a useful place to start your comparisons.

 

[ProfJohnL]

Hello dusty,

It must be the the lack of sleep, but your mixing up you left and right, the 'a' at the other end of the keyboard to the '@'

But seriously, it can pay to look carefully at what and how the policy covers things, not just cost.