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ombudsman news

issue 121

October 2014


Buildings and contents insurance can be a tricky area for a lot of people. One area in particular where we see problems arise is where people are asked to give their own valuations of how much their contents are worth.

It can be difficult for people to calculate the value of their possessions - and we wouldn’t expect consumers to be experts at this. So it can be very stressful for consumers when they’re told that they’ve “under-insured” themselves - as a result of underestimating how much their possessions are worth. They’re usually only told about this after they put in a claim - by which time it can be too late.

We see a range of responses from insurers to the issue of under-insurance. Some pay the claim, some pay a reduced amount, and some insurers would cancel the policy completely.

With cases we see involving under-insurance, our approach is similar to the approach we take to complaints involving “misrepresentation”. The crucial point in cases like these - and in many insurance disputes we see - is whether insurers are asking their customers clear and straightforward questions.

For example, we see application forms which ask “how much cover do you need?” when what the insurer actually wants to know is “what’s the total value of all the items in your home?

If an insurer didn’t ask the consumer to tell them the cost of replacing all their contents - and didn’t warn them of the consequences of under-insuring their contents - we may well take the view that the insurer should pay the claim in full, rather than settling it “proportionately”.

In some cases we see the advice given by insurers can be misleading and lead the consumer to underinsure their contents. For example, in some cases insurers refer consumers to online valuation calculators without checking if the calculator is suitable for that particular customer.

Similarly, in other cases we see where a policy came up for renewal, the insurer pre-filled parts of the form and didn’t ask the consumer to check the accuracy of the information. We appreciate online calculators and pre-filled forms can help consumers - but sometimes we see cases where these have led to things going wrong.

Consumers also have their part to play. They’re responsible, when asked, for giving the best estimate they reasonably can of the value of their contents.

We’re unlikely to find against an insurer just because they’ve not warned their customer that valuations can change over time. Gold costs more than it used to - and it would be a consumer’s responsibility to make sure their gold and jewellery is fully insured.

Obtaining clear and complete information is crucial to insurance. Which is why we don’t see many problems arising when insurers ask the right questions - which consumers are able to answer accurately.

Our online technical resource provides more information on our approach to under-insurance complaints.

issue 121 index of case studies

  • 121/1 - consumer's daughter complains that she wasn't asked a clear question when taking out insurance
  • 121/2 - consumers complain that "straightforward insurance" wasn't straightforward at all
  • 121/3 - consumer complains that valuation calculator wasn't suitable for her home
  • 121/4 - consumer complains that loss adjuster's valuation calculation was wrong
  • 121/5 - consumer complains after insurer "voids" her policy for underinsurance
  • 121/6 - consumer complains that he can't replace a lost item - because his insurer didn't advise him about changing price of gold

consumer's daughter complains that she wasn't asked a clear question when taking out insurance

Mrs F wanted to insure the contents of her home, but being unconfident with finance and figures, she asked her daughter - Miss F - to help.

Before arranging the insurance, Miss F did a bit of research. She asked her mother what some of the more expensive items in the house were, and used the internet to find out roughly how much those items were worth. Once she was happy, she went online in search of a policy for Mrs F.

Using the information she’d found online, Miss F completed the online form for an insurance policy. Afterwards, a representative from the insurer phoned to get a few more details. During the call, the insurer’s representative said that it would be worth double-checking the value of the jewellery, because if it turned out to be much more expensive than she was saying, Mrs F “wouldn’t get the full value back if she ever had to claim.”

Later in the year Mrs F’s house was burgled. Mrs F asked her daughter for some help sorting things out - so Miss F called the insurer to make a claim.

The insurer contacted Miss F a month later to make an appointment for a loss adjuster to visit Mrs F’s home. The earliest the loss adjuster could come round was in four weeks’ time.

When the loss adjuster visited Mrs F’s house, he looked over what had happened, and gathered evidence for what had been stolen. He provided a report to the insurer a month later. In the report, he said that although the claim should be paid, he did have one area of concern. This related to the contents of Mrs F’s home, which had appeared to have been considerably under-insured.

Mrs F had cover in place for up to £10,000 worth of “high value” items, such as jewellery. But the report valued the missing jewellery at closer to £100,000. The loss adjuster’s recommendation was that the insurer should pay Mrs F the £10,000.

But when the insurer received the loss adjuster’s report, they concluded that Mrs F, or Miss F, had failed to tell them the true value of Mrs F’s possessions. They said that if they had known the true cost of replacing everything, they wouldn’t have offered insurance in the first place. So they cancelled (“voided”) the policy.

Miss F complained. She said that she’d been honest about the valuation. She added that it had never occurred to her that claiming an amount less than the jewellery was actually worth would result in them paying nothing at all.

The insurer wouldn’t change their mind - so, on Mrs F’s behalf, Miss F brought the matter to us.

complaint upheld

We asked Miss F to take us through what had happened. She said that she’d wanted to insure the contents of her mum’s home. She thought that using the internet to gauge how much a few of her mother’s possessions had been worth was better than just guessing.

We wanted to see what Miss F had been asked when she applied for the policy. So we asked the insurer to give us screenshots of their online forms, and a recording of the follow-up call.

When we received the screenshots of the online process, we realised what had happened.

One of the questions Miss F was asked was, “what is the total value of the contents to be insured?” There was a “further information” box to explain the question, but it was in small print, and wasn’t very close to the question itself.

Miss F had understood the question to mean, “what’s the total value of the contents you want to be insured?” The insurer had meant “what’s the total value of all of the contents of the home you want us to insure?”

Those are two quite different questions, and we could see why Miss F had answered as she did. We decided that as the question was ambiguous, it was unfair to penalise Mrs F.

On top of this, we couldn’t see any efforts by the insurer to warn Miss or Mrs F about the consequences of under-insurance. The insurer’s representative had merely suggested that Mrs F wouldn’t “get the full value back” in the event of a claim - rather than saying she might get nothing back at all.

We thought that if Miss F had been asked a clearer question and had been warned about the consequences of under-insurance, she would have acted differently.

The solution that seemed fairest to both sides was to reinstate the policy, and reconsider Mrs F’s claim - bearing in mind the existing limits in the policy for items such as jewellery. We also told the insurer to remove any references to Mrs F having a policy “voided”.

Finally, we felt that the insurer had been very slow to look into Mrs F’s claim which had been frustrating for her - so we told the insurer to pay Mrs F £200.

consumers complain that "straightforward insurance" wasn't straightforward at all

Mr and Mrs Y were looking to change insurers for their contents insurance to get a better deal. After shopping around a bit, they settled on a particular company and printed off an application form with its supporting documents.

When filling out the forms, Mr and Mrs Y were presented with three different options for cover. They could get up to £50,000 cover, either with or without accidental damage cover, or up to £25,000 cover with a deduction for wear and tear.

They weren’t sure how much their possessions were worth, but they had some quite valuable items. Having read the policy brochure they’d printed out, they thought it would be best to go with the highest level of cover. They completed their application forms and sent them off. They subsequently received confirmation documents which they read and filed away with their other important documents.

The following winter Mrs Y arrived home from work one day to find that their house had been flooded by a burst pipe. She immediately phoned her husband, and she called their insurer and a plumber.

After the water was pumped away, a loss adjuster came round to assess the damage and investigate the claim.

The loss adjuster realised that there was well over £50,000 worth of damage to the contents of Mr and Mrs Y’s house. He reported this to the insurer.

The insurer accepted Mr and Mrs Y’s claim. But the insurer said that because the couple’s house was under-insured, it would reduce the amount of money it would pay Mr and Mrs Y. The insurer offered Mr and Mrs Y £25,000.

Mr and Mrs Y said that they thought this was outrageous. They thought they had up to £50,000 insurance, and even if the contents of their house were worth more, they felt they should get the full £50,000. So they complained.

The insurer said that the couple hadn’t disclosed the full value of their contents. And the insurer said it was entitled to make the reduced payment because of the under-insurance.

Frustrated, Mr and Mrs Y asked us to look into their problem.

complaint upheld

We wanted to see all the information that Mr and Mrs Y had been given when buying their insurance. Both the couple and the insurer sent us copies of the documents involved.

The policy was advertised as being straightforward, in plain English, without any catches. And the policy brochure itself said that:

“Sometimes people worry about not having enough cover (the technical term is “under-insured”). The result of being “under-insured” is that, in the event of a claim, they will not be covered for the full amount of their loss.

Our … insurance removes this worry for most people by automatically insuring you up to a maximum amount.”

We decided that by selecting the highest level of cover, Mr and Mrs Y were entitled to think they wouldn’t be affected by under-insurance.

We also looked at what the application forms said about choosing how much to insure their home for. Neither the form nor the “key features” document made any reference to insuring the full cost of their possessions. Instead, there were simply three levels of cover to choose from.

We thought this was significant. If Mr and Mrs Y weren’t being asked to estimate the value of all of their things, we didn’t think they ought to know that the top level of cover might not be suitable for them.

Given all the paperwork that Mr and Mrs Y had seen, we thought it was reasonable for them to think they weren’t in danger of being under-insured. So we decided it would be unfair to hold their accidental under-insurance against them.

We told the insurer to reconsider the claim, disregarding the clause about under-insurance. We also saw that the insurer’s very slow handling of the claim had been very stressful for Mr and Mrs Y, so we told them to pay the couple £300 in compensation.

consumer complains that valuation calculator wasn't suitable for her home

When Mrs J came to renew her home insurance, her insurer told her that their underwriting policies had changed. Mrs J had previously had “unlimited” cover, but with the change in the insurer’s policies, Mrs J now had to provide a valuation for her home.

The insurer told her to use an online valuation calculator on a different company’s website. Wanting to get everything right, Mrs J went around her house noting all the details she could think of, and even used a tape measure to double-check the size of her rooms.

When she had everything together, she went online to value her house. Everything went smoothly, and Mrs J felt reassured that her home was now safely insured.

A few months later, a burst pipe caused severe damage to much of Mrs J’s home. She called her insurer to make a claim.

The insurer’s loss adjuster visited Mrs J’s house and assessed the damage. But when putting together her report, the loss adjuster realised that Mrs J’s property was substantially under-insured. She thought that it had only been insured up to about half the true value.

When the insurer received the report, they decided to pay the claim - but only proportionately, because the house was so under-insured.

Mrs J complained. She said that she’d used the insurer’s suggested valuation calculator - as they’d told her to - and should therefore have been fully insured.

But when the insurer wouldn’t change their mind, Mrs J asked us to step in.

complaint upheld

Unfortunately the valuation calculator that the insurer had told Mrs J to use was no longer available. So we couldn’t see exactly what Mrs J had been asked. We asked Mrs J how much she could remember about the calculator. And we asked the insurer what information they had about the calculator they had been telling their customers to use.

The problem quickly became apparent from what Mrs J and the insurer were telling us. The calculator itself wasn’t suitable for Mrs J’s property. It allowed calculations on properties with up to four bedrooms, while Mrs J’s had six. And it didn’t ask about non-standard things, so hadn’t picked up that Mrs J’s house was a listed property.

There was no disagreement that the insurer had advised Mrs J to use the valuation calculator. And nothing in what either side told us suggested that Mrs J had been at all dishonest in her application. After all, she’d even taken the trouble to measure up her whole house.

Taking these facts together, we took the view that before they told her to use the calculator the insurer should have at least checked some basic facts. So because the fault was the insurer’s, we decided it was unfair of them to reduce their payment to Mrs J for under-insurance.

We told the insurer to pay Mrs J the difference between what she’d already received and what she would have got had she been fully insured.

consumer complains that loss adjuster's valuation calculation was wrong

Mr B’s home had only been insured for a few months when disaster struck. An electrical fire broke out and severely damaged a few rooms in his house. Firefighters were able to put it out relatively quickly - and once the emergency was over, Mr B called his insurer to make a claim.

The insurer sent their loss adjuster to inspect the damage and draft up a report. Having assessed the damage, the loss adjuster estimated the “value at risk” - the cost of rebuilding Mr B’s house - as about £150,000.

The insurer considered the loss adjuster’s report while deciding whether to accept the claim. They noticed that the building was only insured up to £100,000 - and concluded that the house had been under-insured. So while they accepted the claim, they decided to settle it “proportionately” - giving Mr B only part of the maximum £100,000 he was insured for.

Mr B said he thought this was outrageous. He complained to the insurer, questioning the loss adjuster’s valuation saying he wanted the full payment. Mr B pointed out that his house had been built using a timber kit, so was much cheaper than traditional brick buildings.

The insurer wouldn’t change their mind. So Mr B asked us to look into things for him.

complaint upheld

We asked both sides for their views of what had happened. Mr B gave us all the evidence he had about how much the house had originally cost. Including the land, labour, building, decorating and furnishing costs, Mr B’s house had originally set him back roughly £110,000. An invoice showed that the timber kit used had cost about £30,000 ten years earlier.

The insurer was less forthcoming in the information they provided. They gave us the loss adjuster’s final figures for estimating the “value at risk”, but said they weren’t able to show how he’d reached his estimate.

Having done some research, we consistently found that building a house from timber kits of the size that Mr B had used cost considerably less than the loss adjuster had estimated. But when we researched the cost of using brick instead of a timber kit to rebuild Mr B’s house, the cost matched the loss adjuster’s estimated figure.

So it seemed likely to us that the loss adjuster hadn’t factored in the fact that Mr B’s house was a timber kit. This had increased the estimate of rebuilding the house substantially.

When we told the insurer this, they said that it was their policy to use “brick-based costing when assessing rebuilds”. We thought this was unfair on Mr B, as it had left him out of pocket.

Given how much Mr B’s house had originally cost him, and how much timber kits cost, we didn’t think he’d been under-insured. So we told the insurer to meet Mr B’s claim as though he wasn’t under-insured, paying him the money that had originally been deducted from the settlement.

consumer complains after insurer "voids" her policy for underinsurance

While she was at work, Mrs A’s house was broken into and all her jewellery was taken. A window had been smashed at the back of the house and the thief had climbed in. Mrs A immediately phoned the police to report the crime. At the end of the call, the operator suggested Mrs A phone her insurer, which she promptly did.

The insurer sent round a loss adjuster to interview Mrs A and find out what was taken.

Mrs A listed quite a lot of items - mainly jewellery. And when the loss adjuster started carrying out valuations on the items taken, he realised that replacing all the stolen items would cost over £120,000.

When the insurer received the loss adjuster’s report, they decided to cancel Mrs A’s policy and refund all of her premiums. They explained that Mrs A was only insured up to £25,000. They said that she’d so severely under-insured her possessions that “voiding” the policy was their only option - because if they had known the true value of the contents of her home, they wouldn’t have insured Mrs A in the first place.

Mrs A complained. She said that the valuation figure was too high, as the stolen items could never have been sold for so much.

The insurer explained that while that might be true, they would have to replace her stolen items with brand new goods. They said this explained the high figure.

When the insurer wouldn’t change their position, Mrs A complained to us.

complaint not upheld

First we wanted to see how the loss adjuster had arrived at his estimate. The insurer showed us the list of items that had been taken - signed by Mrs A. At the same time, they also gave us evidence showing the cost of the items. We checked these valuations, and couldn’t see anything wrong with the way the loss adjuster had arrived at the figures.

Secondly, we turned to the question of whether Mrs A had under-insured her possessions - and whether she’d been treated unfairly. We wanted to see what Mrs A had been asked when taking out her policy. There was little information from the time that Mrs A had originally taken out the policy - but it had been renewed several times.

The covering letter that accompanied each year’s renewal forms said, in bold text:

Please ensure all the information you provide is accurate and up to date, as any inaccurate information could impact upon the success of future claims.

The renewal forms that Mrs A had signed and returned each year said:

Please check this information carefully and call us immediately if anything is untrue, incomplete or out of date so we can send you new documents.

And below the section “Contents”, Mrs A had been asked to confirm that, “the full cost of replacing the contents of your property does not exceed £25,000.

In cases like this, we have to weigh up whether an insurer has been put in an unfair position because of a consumer’s carelessness in response to clear instructions. We didn’t think that Mrs A had been careful when completing the forms.

The insurer had said that if they’d known the true cost of Mrs A’s possessions then they wouldn’t have insured her. To back this up, they sent us copies of their underwriting guidance. The guidance said that insurance wouldn’t be granted if the contents were worth more than £100,000, or if there was an “excessive amount of jewellery”.

We thought that both of these conditions were true in Mrs A’s case. So we agreed that the insurer wouldn’t have offered Mrs A insurance if they’d known the true cost.

We sympathised with Mrs A’s situation, and understood that it was a very distressing time for her. But in this case, the insurer hadn’t acted unfairly in rejecting her claim. We didn’t uphold Mrs A’s complaint.

consumer complains that he can't replace a lost item - because his insurer didn't advise him about changing price of gold

Mr U took out a new home insurance policy which allowed him to insure particularly valuable items individually. He wanted to insure one of his wife’s gold bracelets, which was one of her favourites. A few years earlier it had been valued at £4,500, and this was the valuation that Mr U had given the insurer.

A few years later Mr U and his wife returned from an evening out, and his wife noticed that she no longer had the bracelet on. She thought it must have come undone or fallen off during the evening. In the morning, Mr U called their insurer to put in a claim so he could replace the bracelet.

The insurer instructed a loss adjuster to assess the claim. He looked at the details of the bracelet and estimated the replacement cost at about £8,500.

The insurer received the loss adjuster’s report and offered to pay Mr U £4,500 - the value he’d had the bracelet insured for.

Mr U wasn’t happy with this. He said that he wouldn’t be able to replace the bracelet for £4,500, and should receive the full £8,500. He said that he’d insured the bracelet so that it could be replaced if the worst happened - and he expected to be able to replace it now.

The insurer disagreed. They said that when Mr U had taken out the policy their representative had made it very clear to Mr U that he was responsible for keeping the valuation of the bracelet up to date.

They also said that when Mr U had been renewing his policy each year he’d been given several warnings about the consequences of under-insuring his possessions.

As the insurer wouldn’t change their stance, Mr U brought his complaint to us.

complaint not upheld

We wanted to see what Mr U had been told about insuring his wife’s bracelet. So we told the insurer to send us a recording of the initial phone call with Mr U.

It was clear from the phone call that the bracelet had been very important to Mr U and his wife. The discussion of the bracelet had taken up most of the call.

When the topic of valuations came up, the representative had stressed more than once the importance of getting regular valuations. At one point during the call the representative said, “the really important thing, [Mr U], is that you get your wife’s bracelet re-valued when you’re renewing your policy, as you don’t want to be under-insured in the event of a claim.

The conversation then moved on to discussing whether re-valuations would affect Mr U’s premiums or incur an administration charge. So we were confident that Mr U had been told about valuations during the initial call.

We also wanted to see what Mr U had been told when he’d renewed his policy. The insurer provided copies of the three most recent renewal documents.

We could see that the insurer’s covering letters had said “check that the level of cover is sufficient, as prices and circumstances can change year on year.” The forms themselves contained similar warnings too.

We decided that the insurer had made a lot of effort to explain under-insurance to Mr U, and had warned him about the consequences. So we didn’t think the insurer had acted unfairly in paying Mr U £4,500 to settle the claim. We didn’t uphold his complaint.

image: ombudsman news

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.