exceeding the sum insured

The sum insured is an important component of most household policies and policyholders need to take reasonable steps to assess this amount as accurately as possible. We will support those insurers which reduce payments to policyholders where the total sum insured is clearly quite inadequate to cover the property at risk.

However, assessing the correct amount is not an exact science and it is evident from our caseload that many policyholders find it a genuinely difficult assessment to make. Even where they have made a full and honest attempt to value all their household contents, they may be under-insured. We therefore take a sympathetic line where more detailed scrutiny by a loss adjuster suggests the sum insured may be somewhat short of the true replacement cost.

Policyholders can find valuation a significant problem in the case of contents policies, but it may be even more acute a problem in the case of buildings policies. Rebuilding costs are something that most householders can only guess at. Householders purchasing a property with a mortgage will usually obtain this valuation from the lender’s surveyor. Many other policyholders will rely on the purchase price (a notoriously poor indicator of rebuilding costs).

Even where the purchaser has obtained a good rebuilding cost estimate, it may not represent the maximum potential cost of rebuilding. Albeit rarely, actual rebuilding costs can necessarily exceed the sum insured; an example is given in case study 04/16 on page 20. We do not believe it reasonable in such cases for the insurer to rely on the maximum sum insured to limit their liability. It is precisely this sort of unusual eventuality that policyholders expect their insurance to cover.