Steve Read calls for more accurate renewal quotations.
Insurers and brokers might be sailing close to the wind when it comes to helping customers decide on an appropriate level of insurance for their household contents.
Under-insurance is commonplace and has been widely reported over recent months. Estimates of the numbers of households who are under-insured vary, but it is a big problem for the insurance industry and its customers.
Perhaps this is not surprising when you consider the guidance and advice given by insurers and brokers when a customer rings to renew their home contents insurance.
In a recent survey, calls were made to a random selection of UK brokers and insurers to renew home contents cover for a four-bedroom house. During the calls, when researchers were asked "what is the value of your household contents?", they said "I don't know", and then monitored responses from the insurance advisers.
Whilst most advisers were very polite, and their knowledge of their products was admirable, they were not so good at helping our researchers find an accurate level of home contents cover.
More than 87% of advisers used last years sum insured figure, an `industry average', or the number of bedrooms on which to base the quote.
No attempt was made to verify if the value of contents used for the quote was accurate or even sufficient. So if last years figure was too low, or the average is not appropriate, then people are likely to be even more under-insured than last year.
It is surely dangerous to base this years insurance cover on last years value without checking its validity. The compound effect of many years of under-insurance starts here.
Interestingly, the average contents figures quoted by advisers for a four-bedroom house varied from £23,000 to £40,000. Research by Abbey National shows that 36% of people think their home contents are worth more than £35,000 (this was the most common figure used by insurance advisers in this research) and nearly 20% estimate them to be worth over £50,000. Something is going wrong somewhere.
Researchers got some interesting advice. One adviser said that they "work on £10,000 per bedroom, so for a four bedroom house, £35,000 should be adequate". Another said that without the customer providing a figure, he couldn't help - adding quickly "... but most people go for £35,000 so would that be OK?"
Less than 10% of insurance advisers suggested compiling an inventory as the best way make sure insurance cover is adequate. This went up to only 34% when the adviser was prompted, sometimes up to three times in the same call "how can I be sure that my cover is sufficient?"
Even those who advised compiling an inventory let themselves down by saying things like "just jot it down and tot it up." or "just walk round and flick through a catalogue. It's not easy but only takes about an hour". Only 3 brokers said that a comprehensive costed inventory was the only way to be sure, and did not trivialise the importance and magnitude of the task.
18% gave no guidance at all and left it to the customer to decide.
So it's no wonder then that so many people are under-insured.
Surely there are compliance issues here with existing GISC and forthcoming FSA regulations requiring insurers and brokers to enable their customers to make an informed decision before buying their insurance. People who may well currently be under-insured are receiving no help to get themselves out of the trap. In addition, despite lengthy discussions about appropriate levels of cover, very few of our researchers were told of the consequences of being under-insured.
There are many ways to compile an inventory, from a basic hand written list, to an affordable, yet comprehensive home contents management system such as MyHomeInventory which enables householders to easily compile and manage a fully costed inventory with Retail Price Index updates and secure away-from-the-home storage.
Perhaps some insurance advisers need to do a bit of research themselves.
To share your thoughts with Steve on this issue you can e-mail him on:
steve.read@secureinventories.com
