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What is Under-Insurance?

A recent Central Bank of Ireland review of the Home Insurance Market (September 2022) highlighted the risk of Under-Insurance to Homeowners. Under-insurance occurs when you choose the sums insured for your buildings and contents and they do not reflect the full rebuild and replacement costs for your home and your possessions.  Under-insurance in the home insurance market has been steadily increasing over the last 5 years and is largely driven by building cost inflation in the construction sector including higher material and labour costs and significant increases in energy costs.

What this means for you

If the sums insured on your building and contents are less than the actual replacement value, you may not receive the full settlement associated with a claim. This is known as the Condition of Average, or Average Clause. (Please find overleaf an explanation of Average Clause)

What you need to do

Please review the adequacy of your buildings and contents sums insured with consideration to the Average Clause. If Average Clause is applicable to your policy, it will be noted as H27 and H28 under the Endorsement Section on your policy schedule.

What AIG will do for you

If you have a claim, AIG will review your building and contents sums insured at that point in time. If AIG are satisfied that you were adequately insured at the start of the policy term, there will be no application of the Average Clause (if it applies to your policy) and your claim will be adjusted in the normal manner subject to policy conditions.

Average Clause - Endorsement

If at the time of a loss or damage the sum insured is less than the full rebuilding cost of the buildings as defined, We will pay only for the proportion of the loss or damage which the sum insured bears to such cost.

If at the time of a loss or damage the sum insured is less than the cost of replacing all the contents as new, less an allowance for wear and tear for items listed in “How Claims will Be Settled” section of this policy wording, We will pay only for the proportion of the loss or damage which the sum insured bears to such cost.

Examples of the application of Average Clause are set out clearly below:

Melissa insures her buildings for €200,000. The actual replacement value is €400,000. (Based on current rebuild guidelines)

Melissa has a fire in her property which results in a complete loss.

As the replacement value should be €400,000, the Average Clause will apply and the amount payable to Melissa is €200,000 i.e. half. 

Melissa has a burst pipe and submits a claim for €20,000 for damages to her property.

As the replacement value should be €400,000, the Average Clause will apply and the amount payable to Melissa is €10,000, i.e. half. 

 

You may wish to seek guidance from the Society of Chartered Surveyors of Ireland (SCSI) scsi.ie to help inform you in your calculation of your building’s sums insured valuation. You may wish to seek an independent review with a quantity surveyor or assessor. Please note that any fee incurred by you in this process is not refundable by AIG.

When calculating the rebuild value of the property if it was completely destroyed you should include the costs associated with demolition, removal of debris, Local Authority and professional fees. You should also consider the cost of replacing all your fixtures and fittings in both your dwelling house and domestic outbuildings. 

As contents are unique to each individual, it is important that you review all the contents in your property on a room-by-room basis. The Contents sum insured should include all household goods, personal belongings, domestic contents including those in your garage or outbuildings, such as bicycles, lawnmowers or other domestic tools. You may wish to seek guidance from the Competition and Consumer Protection Commission (CCPC) www.ccpc.ie to help inform you in your calculation of your content’s sums insured valuation.

The above advice may not fully reflect your individual circumstances for your buildings and contents calculations, and we would encourage you to refer to your policy booklet for more detailed information including any limits that may apply.

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