You’ll have read three posts already today (here, here and here) about how insurance companies and mortgage providers are trying to force Irish consumers to overstate their rebuild costs for their home insurance policies.
For the insurance companies, I can see the motivation – if the rebuild costs are overstated, then the risk is higher, and therefore they can charge higher premiums at a time when they’re losing money elsewhere.
I’m kind of at a lost as to why mortgage providers are insisting that rebuild costs are boosted over and above the values they should actually be according to the Society of Chartered Surveyors (SCS) rebuild costs documentation.
In the mean time, there are a few questions that I have on this whole thing (but remember, I love a conspiracy, so none of these might have any relationship to reality):
- Cross selling – if the mortgage provider and the home insurance provider are the same company, then you could understand that one division of the organisation that is unlikely to be making much money these days (mortgages) is doing its best to boost revenue for other divisions (insurance).
- Past profits – The focus these days has been for people to find out the rebuild cost rather than the actual value. I wonder in the past how many people insured their homes at the market value – and therefore provide an overstated windfall for insurance companies. So, not only are the losing money now on the premium difference between rebuild costs in the past, and rebuild costs now – but they’re actually losing on the difference between rebuild costs today and the market value at the height of the property boom.
- What happens when there’s a claim – If my mortgage company insists on a rebuild cost of €400,000 for my house, but the actual cost is only €290,000, and my house burns down. If the insurance company pays out €400,000, and my house is rebuilt for €290,000 – who gets the €110,000?
If anyone has any thoughts on this, I’d love to hear from you.