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Have you noticed an increase in your home insurance premium?
If your home insurance has come up for renewal this year you would have noticed an increase in the insurance premium, even if you haven’t made a claim! In this short article Will Cooper explains why.
Energy, War and Rising Costs of Construction
The world is becoming more uncertain and volatile with each passing week. As reported in the Guardian, a cost-of-living crisis is beginning to hit all households, including the affluent; Ofgem report energy prices will continue to soar, and This Is Money comments that building materials and construction costs are on the rise.
Additionally, headline inflation levels are at 7-10% according to the Bank of England. But when you are looking at the cost of replacement parts or replacing building materials as inflationary factors, it outstrips that by some margin because of labour and the supply shortage of parts.
When you combine all these factors, it makes for an unpleasant recipe for rising costs that will effect all classes of UK society.
Index Linking and What it Means
Index linking is not based on the general rate of inflation. It is calculated based upon the costs of raw materials, availability of labour, demolition and waste removal, professional services fees, plus any other costs associated with a complete rebuild of the property.
In the case of home buildings insurance, the most widely used index for calculating rebuild costs is the BCIS House Rebuilding Cost Index, which is part of the Royal Institute of Chartered Surveyors (RICS.) Contents Insurance is typically based on the Retail Prices Index (RPI). There is no one rule and many insurers calculate index linking based on their own data.
Watch Out!!
Some insurers will also index-link art, antiques and jewellery but at best this is just papering over the cracks. Patek Phillipe and Rolex watches have increased significantly in value over the last 12 months and that is why it’s important to obtain a fresh valuation at least every five years so that if a claim happens, you receive enough from the insurer to replace like for like.
I’ll discuss this in greater detail next month when I’ll be exploring the fast-moving world of luxury watches.