When taking out a home insurance policy, a maximum amount the insurer will pay in the event of a claim – the ‘sum insured’ – is set. This often requires the consumer to estimate the cost to rebuild their home and to replace their contents. That can be difficult for consumers to do.
If the sum insured is too low, insurers may not pay claims in full – or they may not pay them at all. This can be distressing for consumers, particularly if the claim is for significant damage to their home or contents. So it’s important to ensure that consumers understand what information they need to give to get the sum insured right.
Types of complaint we see
In many insurance disputes we see, consumers complain that insurers haven’t asked the right questions when they took out the policy.
For example, we see questions such as:
- how much cover do you need?
- or simply, ‘sum insured?’
What insurers usually want to know is:
- what is the total value of all the items in your home?
- how much would it cost to rebuild your home?
Other examples of underinsurance complaints we see are:
- The consumer thinks they insured their home or contents for the right amount – and their claim should be paid in full.
- The consumer accepts they were underinsured, but not to the extent the insurers say they were. So they think they should receive more for their claim.
- The consumer felt the information provided at the time of sale was unclear and misleading. So the consumer doesn’t think they should lose out. This complaint can be directed to an insurer and/or a broker depending on how the policy was sold.
Handling a complaint like this
When you receive a complaint about underinsurance, you should reply to the consumer within eight weeks.
If you don’t reply within the time limits, or the consumer disagrees with your response, they can bring their complaint to us. We’ll check it’s something we can deal with, and if it is, we’ll investigate.
We’ll expect you to be able to show us that you’ve investigated the complaint thoroughly and that you have reflected carefully on the circumstances.
Find out more about how to resolve a complaint.
Information we will ask for when we receive a complaint
Once a complaint has been referred to us, we will ask you to provide information about your side of events.
The typical information we would normally expect to see about this type of complaint for commercial customers includes:
- copy of the proposal form and any evidence provided prior to the policy renewal in the relevant policy year
- confirmation the customer had made clear to the broker what the figures for business interruption cover should reflect
- confirm the level of premium paid for the business interruption cover in policy year
- the business should confirm what it would have done if the customer had made a fair presentation of the risk prior to the policy renewal
- if the business would have charged a higher premium, confirm how much it would have been or whether it would have offered a different policy
- if the business accepts the customer’s failure to make a fair presentation of the risk was neither deliberate or reckless
- if the broker was acting as insurer’s agent in connection with the sale of the policy
- how the terms were made clear to the customer that underinsurance would put them in a worse position than the redress allowed under the Insurance Act 2015
We may ask for further information or documents, depending on the circumstances of the case.
Read more about how we handle complaints.
What we look at
Before providing cover or renewing a policy, insurers often want to know the cost to replace the contents of a property, the cost to rebuild a property, or both.
This is so they can assess the risk they’re taking on before giving a quote.
But consumers aren’t usually experienced in working out these costs, and there may not be enough information available to help them.
We’ll bear this in mind when we’re investigating complaints about underinsurance.
We’ll need to first find out who sold or renewed the policy – was it the insurer or a broker? We’ll want to know what questions they asked and whether they gave any guidance to the consumer.
Based on what we find, we’ll think about things from the consumer’s point of view. For example, what information did they think they were being asked to provide – and were their answers reasonable in the circumstances?
Insurers may ask a consumer about valuing their contents in a number of ways, for example:
- what’s the total value of contents held at your property?
- how much cover do you require?
- sum insured?
The first question is asking about the total value of the items at risk in the property, while the other two ask how much the consumer wants to insure. The third uses jargon that a consumer may not be familiar with.
Whilst an insurer may want to know the total cost to replace contents in all three cases, a consumer may reasonably give different answers to all three questions.
Insurers may also ask a consumer about valuing their buildings in a number of ways, for example:
- amount to be insured – buildings
- rebuild cost
- how much would it cost to rebuild your home: the value shown should be the present day rebuilding cost including debris removal; architects’, surveyors’ and consultants’ costs, legal fees and VAT; and the additional cost of complying with government requirements
We’ll look at whether the question clearly asks for the information the insurer wants to know and how helpful it is for the consumer, including:
- does it point them in the right direction to reach an accurate figure, for example, by referring to online calculators?
- does it say what must be included in the rebuild cost?
We’ll also need to assess any additional guidance you gave the consumer. We’ll ask:
- did you provide clear descriptions to help them value their contents or estimate the property’s rebuilding cost?
- was it clear that you were asking for the full replacement cost of the contents in the property or the full rebuild cost?
- was it clear what you meant by contents or buildings?
- if the sale or renewal was completed online, would the consumer have been unable to complete the application without reading any guidance notes?
If the answer to any of these questions is no, we may not consider it fair for you to:
- reduce the claim payment (known as ‘applying average’)
- void the policy
- adjust the claim in other ways
Online sales can help consumers, but we sometimes see cases where they’ve led to things going wrong.
For example, insurers sometimes refer consumers to an online valuation calculator. This can help them to estimate the rebuild cost of their home by sharing a few key details, such as postcode, floor area and the number of bedrooms. But this kind of tool doesn’t apply to all homes, so it won’t help all consumers. Even when it does apply, it’s based on consumers getting the key details right – which can be difficult in some cases, for example if someone isn’t familiar with measuring the floor area.
The calculator will often give a wide-ranging estimate and leave it up to the consumer to decide what figure is appropriate based on the quality of their home. This can lead to disagreements about what figure the consumer ought reasonably to have given.
Some online application forms try to help consumers by auto-completing fields to suggest an answer. For example, the form may use the consumer’s answers to questions like ‘how many bedrooms does your property have?’ and the postcode to estimate the rebuild cost and fill in the answer for them to think about.
Sometimes when a consumer gives answers on a comparison website, they’re taken to the insurer’s website to complete the sale – and their answers from the comparison website are pre-filled on the insurer’s website to save the consumer going through the questions again. However, the wording of questions can be similar, but different, between the two websites.
These things can give consumers the impression they don’t need to double check the suggested or pre-filled answers for themselves – and it can cause problems if the insurer thinks the consumer isn’t insured for enough.
We’ll look at how clear the online journey was, particularly where questions change during the process and/or consumers are expected to double check pre-filled information as this can be unclear or misleading to consumers.
Once we know what information the consumer was asked for and provided with, we’ll think about the answer they gave. In a nutshell, we’ll consider whether the answer was reasonable by taking into account a number of factors, including:
- The specific question asked and any guidance given – as the consumer can only be expected to give a reasonable answer to that question and rely on that guidance. They’re unlikely to be an expert in this field.
- What information did the consumer rely on and/or have available to them when answering the question, such as valuation surveys for the building or an estimate from an online calculator?
- We’re unlikely to place much weight on information that wasn’t or couldn’t have been available to the consumer at the time they took out or renewed the policy. For example, expert valuations carried out by loss adjusters after the policy was setup or renewed last.
- Did the consumer take care to think about and reach a reasonable answer – or did they just give a ‘best guess’ with little thought?
- But, we’ll keep in mind that there’s no such thing as the correct answer to a question such as ‘how much would it cost to rebuild your home’. Experts looking at the same home often give different estimates but that doesn’t make one right and one wrong. So we’ll consider whether the consumer’s estimate is within the reasonable range of answers.
When the consumer gives a reasonable answer
If we’re satisfied the consumer’s answer was reasonable, we’re likely to find it unfair for the insurer to take any action. So we’ll usually ask them to pay the claim in full.
We’ll also consider whether interest and/or compensation for distress and inconvenience are appropriate in the circumstances.
Read some examples in our case studies:
When the consumer doesn't give a reasonable answer
If we’re not satisfied the consumer’s answer was reasonable, we’ll find out about the impact of that answer on the insurer to decide what a fair outcome would be. That will usually mean seeking evidence from the insurer about what it would have done had it known the reasonable answer at the relevant time.
Here’s a summary of the most common impacts we tend to see if the insurer had known the sum insured should have been higher and the likely outcomes:
Impact Outcome The insurer would still have insured the consumer at the same premium. We’re unlikely to find it fair for the insurer to reduce or decline the claim. The consumer has paid the full premium , so it would be fair for them to receive the full claim settlement. The insurer wouldn’t have insured the consumer at all. We’re likely to find it fair for the insurer to reduce or decline the claim. The consumer’s unreasonable answer has caused the insurer to offer a policy it wouldn’t have done. So it’s entitled not to deal with the claim at all and may also void the policy. The insurer would still have insured the consumer – but at a higher premium.
We’re likely to find the insurer can reduce the claim in line with the proportion of the premium paid by the consumer. For example, if they paid £400 but should have paid £500, as they’ve paid 80% of the premium, it’s fair for them to receive 80% of the claim value.
If the insurer has offered more than that proportion, perhaps because it’s relied on an average clause, we’ll usually find it’s treated the consumer fairly overall.
Read some examples in our case studies:
In cases of underinsurance, the insurer may choose to ‘apply average’ to the claim under a policy’s average clause.
This usually means reducing the claim in line with the proportion of underinsurance. So if the sum insured is £300,000 but should have been £500,000, the insurer will pay 60% of the claim value.
Although average clauses are common in home insurance policies, not all policies have them. And those that do, may not be clear. We’re unlikely to find it fair for an insurer to reduce the claim by applying average without a clearly worded term in the policy.
We’ll also take into account the points above about whether the consumer gave a reasonable answer – and the impact if they didn’t. We’re unlikely to find it fair for the insurer to apply average if it puts the consumer in a worse position than that set out above. This is because it’s consistent with the legal principles in place when a consumer takes out an insurance policy. In practice, this means we rarely agree for an insurer to apply average, but there may be times where we do.
Putting things right
If we decide you’ve treated the consumer unfairly, or have made a mistake, we’ll ask you to put things right. Our general approach is that the consumer should be put back in the position they would have been in if the problem hadn’t happened.
The exact details of how we’ll ask you to put things right will depend on the nature of the complaint, and how the consumer lost out. In some cases, we may also ask you to compensate them for any distress or inconvenience they’ve experienced as a result of the problem.
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Business Support Hub
If you want to talk informally about a complaint you’ve received, you can speak to our Business Support Hub. They can give general information on how the Financial Ombudsman might look at a particular complaint. We also offer guidance on our rules and how we work.
Find out how to contact the Business Support Hub.