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The workshop

Insurance claims

OT  poses a monthly scenario from a practitioner. This month, we look at reasons for why an insurer may not pay a claim

02 Dec 2019 by Pete Lishman

The scenario

Matthew, AOP member

“I am looking to take out a new insurance policy and have quickly become baffled by the amount of options that are available out there when I have used an online policy find and compare tool. Can you share any advice on what I should be considering when selecting a policy and any potential traps to avoid?”

The advice

Pete Lishman, managing director of Lloyd & Whyte

Fairly or not, the public opinion of the insurance industry is not always positive. Most of this stems from the experience of making a claim. We’ve all read stories about or know of someone who has had a battle or disappointing outcome when they’ve tried to make a claim.

This is a very easy trap to fall into without realising because online quote engines are designed to make buying insurance straightforward, but have arguably given many policy holders a false sense of security. This often results in the purchase of a policy that the buyer simply hasn’t had time to properly research. On the face of it, the quote they select may seem like the best deal, but behind the common features policies can vary massively from one insurer to the next. It’s only by reading through the seemingly endless pages of policy documents that the true suitability of the contract can be established.

Below are some key points that could lead to an unpaid claim:

1. Non-disclosure

Insurance is a contract between you and your insurer. As a policyholder, it is your responsibility to tell your insurer about anything that might affect the contract. This may seem obvious, but all too often policyholders innocently fail to accurately disclose something that the insurer considers to be a material fact. There are a variety of facts that are often overlooked or unknowingly misrepresented such as the total value of your contents and or valuables, the number of bedrooms or the type of locks you have on your doors and windows.

“If you hold any reservations that your insurer would settle a claim as you would hope or you suspect your policy isn’t meeting your requirements, seek professional advice as a matter of importance”

2. Failing to comply with a condition

All contracts have terms and conditions, and insurance is no exception. Breaking with those terms and conditions can invalidate your insurance. It is important to read all your documents, to check for clauses that may apply, and to make sure that you adhere to them. For example:

  • Alarms: If you have received a discount for having a burglar alarm, you may be required to set it every time you leave the house
  • Locking windows at night: You may be required to lock the windows of all unoccupied rooms at night, even though you’re in the house
  • Valuations: Specified items will require regular valuations, failure to do so may restrict the value of a claims payment or invalidate cover.

3. Underinsurance

Underinsurance is one of the main reasons you may not get as much as you anticipate.

Policies require that you insure for ‘full replacement value.’ For buildings, this is the full cost of reinstating the house as it currently stands, inclusive of all associated costs, such as architect’s fees and clearance costs. For contents, this is the total cost to replace all the items in your home, from carpets upwards, even those bits and pieces you would never bother replacing. If you fail to insure the full value of your home or contents, you could fall foul of a clause typically referred to as ‘average,’ which a large percentage of home insurance contracts include. This allows the insurer to make a proportionate reduction to any claim, equal to that of the underinsurance. For example:

If you require 50,000 but insure for £40,000, you are underinsured by 20%. Your insurer can reduce any claim settlement by the same amount.

Any money you saved on your premium could easily be eclipsed by the reduction applied. In extreme cases of underinsurance, particularly if the correct amount of buildings, contents or valuables cover you require exceeds a level that your insurer would have agreed to had they been aware, your claim may be declined entirely.

“It’s only by reading through the seemingly endless pages of policy documents that the true suitability of the contract can be established”

4. Check it’s covered

A common reason claims are declined is because they’re simply not covered by the policy. Home insurance contracts and the benefits they provide can vary considerably. Aside from the typical features we all look for, such as accidental damage, flood, theft, storm and legal expenses, there are a wide range of additional benefits available, some of which can be just as important as these headline covers. Examples of ancillary covers that could be optional, or missing entirely, include cover for bicycles, “full” accidental damage, suitable alternative accommodation or “trace and access” of leaking pipes.

How confident are you in your cover?

If you hold any reservations that your insurer would settle a claim as you would hope or you suspect your policy isn’t meeting your requirements, seek professional advice as a matter of importance. Don’t put it off and hope that you won’t have to put it to the test. The potential repercussions could be devastating.

As an AOP member, you are entitled to no obligation advice from our team. If you don’t already have a professional insurance adviser, it is worth making the most of this benefit and giving them a call to discuss your circumstances.

For more information, visit the Lloyd & Whyte website.

Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. Calls may be recorded for use in quality management, training and support.

Pete Lishman is a chartered insurance broker and director of Lloyd & Whyte Ltd. He oversees over the provision of specialist commercial and personal insurance services that are available to AOP members.

Image credit: Getty/Natee Meepian

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