Building Insurance – What Affects Your Premium?
Buildings Insurance cover is one of the most important subjects any homeowner must consider, and for most flats and apartments it will typically be one of the larger areas of expenditure.
We appoint an independent insurance broker, AON, an internationally recognized, leading insurance broker, to ensure that our customers receive an excellent level of service and the most appropriate cover, at competitive rates.
A question we are often asked is how is my insurance premium calculated?
The insurance premium for most flatted property is calculated as follows:
Sum Insured x Insurance Rate + Insurance Premium Tax
Therefore, these are 3 factors which can influence the cost you pay.
Insurance Premium Tax is set by the UK Government and has increased to 12% in recent years.
The Sum Insured is the amount of cover the insurer provides for your property and should provide for the “worst case scenario”. If there was a major incident; a fire, storm damage or if a major structural defect occurs, your Sum Insured should be sufficient for full reinstatement of your building.
It is important homeowners set their Sum Insured at an appropriate level. Too low and you risk a claim not being paid in full, too high and you might not be paying the right premium.
So, how do you know if your Sum Insured is at the right level?
The best way to keep your building insured at the right level is to have regular valuations carried out by a building surveyor. A surveyor will consider the construction of your building, its size and other relevant aspects to determine the recommended Sum Insured, to allow for reinstatement and repairs if there is a major incident affecting your building.
If there is a significant change in material costs, labour costs or energy costs, this can have a significant impact on the cost of construction, repairs and maintenance and this has a knock on effect on the required Sum Insured for your building.
Many of our customers already instruct us to carry out regular building insurance valuations to satisfy themselves that the insured value is correct and will be enough in the event of a claim.
If you have not had a valuation carried out recently, each year the Insurer will index-link your Sum Insured to try and ensure that your level of cover does not fall too low. This is not an exact exercise and it is recommended that you ask a Building Surveyor to review your Sum Insured on a regular basis by carrying our an Insurance Reinstatement Valuation.
If your premium has increased in recent years, the main reason is likely due to the Sum Insured increasing through index linking at roughly 3-5% per year. This is influenced by the construction market, and therefore the wider economy too, and building cost index has seen consistent increases in recent years.
As we reported previously, we are informed that ongoing supply chain pressures continue to impact building costs and whilst AON have successfully restricted increases to premium rates for many years, the applicable building cost index is currently around 10%, resulting in the sum your building is insured for increasing at this rate. With the building being insured for a higher amount the premium reflects this increased sum insured.
In the context of the energy price cap increasing by 54%, fuel costs increasing by around 30% in the past year and with some building materials increasing by up by 60%, whilst no increase will be welcomed it is perhaps a relief that this increase is not greater.
The other way you can ensure your property insurance level is adequate, instead of index-linking, is to carry out an Insurance Reinstatement Valuation and if you would like to arrange for a revaluation of your building’s Sum Insured to be carried out, please let us know and we would be happy to help.