Tag Archives | Society of Chartered Surveyors (SCS)

Mortgage companies, Insurance companies and re-build costs – what’s going on?

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):

  1. 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).
  2. 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.
  3. 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.

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Another mortgage company looking to overstate re-build costs for insurance

Here’s a comment posted recently by a ValueIreland.com reader which is linked to todays topic – rebuild costs for the purposes of insurance policies:

I recently renewed my home insurance with a different provider and amended the building sum insured in accordance with the Society of Chartered Surveyors (SCS) Guide to House Rebuilding Costs published.

I forwarded details to my mortgage provider of the renewed policy and received a response suggesting I reassess the current building sum insured.

I responded and advised that I had used the SCS’s Guide.

I received a further response from the mortgage provider advising that in order to change the building sum insured for your property, the mortgage provider will require a current valuation report drawn up and sent to us by your Valuer/Estate Agent.

The Financial Regulators – Guide Home Insurance Made Easy,on Page 4 advises:

“You should insure your home for the amount it would cost to rebuild it. This is called the reinstatement value. It is different to the market value of your home, which is the amount you could get if you sold it. The market value includes the value of the land your home is built on and the location it is in, but the reinstatement value of your home only covers the cost of rebuilding it. To get a rough estimate of the cost of rebuilding your home, use the home-building cost figures in the ‘Guide to House Rebuilding Insurance’ available from the Society of Chartered Surveyors”

Requiring a valuation report to amend the reistatement value of a property is an onerous and costly requirement.

I have lodged a formal complaint with the mortgage provider and I am still awaiting a response.

So basically I am required to over insure my property or get a valuation report which would cancel the savings I have made on updating my insurance policy!!

The requirement above to get an actual market valuation rather than using the SCS rebuild costs valuations is particularly strange.

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Rebuild costs – mortgage company overstating rebuild costs

Following on from this mornings post about home insurance premiums and re-build costs, here’s one e-mail that I received from a ValueIreland.com reader:

I have a query regarding re-building costs and hope you may be able to offer some advice.

We have a 4 bedroom bungalow, approximately 3,200 sq ft, in Connemara, Co. Galway.  We have a mortgage of €220,000 and our now 5   year old home was valued at €290,000 roughly 3 years ago.

We  recently re-insured with a re-building cost of €350,000.  However, our mortgage providers will not accept this and want us to up this to €400,715.00 when I queried this they came back with 423,000?!

In the current climate we feel that this is way to much as we feel building costs have gone down not up as they have suggested!

This will up our insurance and unfortunately as with most of the country we’re doing our very best to keep head above water and every penny is needed and we don’t feel we should have to back down on this matter.

This kind of behaviour by mortgage companies is unforgivable. In very few scenarios will the rebuild costs of a house increase by such a margin in the current property climate.

Given the difficulties people may have in meeting current mortgage commitments and possibly not getting mortgages elsewhere in the current economic climate, these people are essentially putting a gun to the head of the home owner.

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jeopardise their current mortgage arrangement and many are likely to comply rather than kick up a fuss.

What odds that this mortgage provider also provides the home insurance for this particular consumer?

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More on home insurance re-building costs

I’ve written in the past about the re-building costs of houses in 2009 and the impact that it should have on home insurance premium quotes.

The essential premise is that with the fall in the property market, the actual cost to rebuild your house should have fallen, and since that is part of what your home insurance premium is based on, your premium costs should actually be falling.

The Financial Regulator states that:

You should insure your home for the amount it would cost to rebuild it, or the reinstatement value. This is different to the market value of your home, which is what you would get if you sold it. You can get details of current rebuilding costs from the Society of Chartered Surveyors.

Yet, I have recently received three different complaints from people where their insurance company (or their mortgage company who requires the insurance as part of their T’s & C’s) have actually insisted that the person INCREASE the value of the property for insurance purposes.

I’m struggling to work out why mortgage providers would want to have these values overstated. Obviously they’d want to make sure they’re covered themselves, but if standard practice in the past was to accept the SCS rebuild cost values in the past, what’s changed now?

I know probably why are insurance companies doing this? They’re doing it so that they can charge higher premiums to bolster their profits (or reduce their losses).

What can you do?

  1. First of all, ask your insurance company for a written confirmation of their justification for seeking an increase in the value of the property being insured. You may need this later.
  2. Now check the updated Society of Chartered Surveyors Guide to House Rebuilding Costs for 2009. Work out the rebuild costs for your house, and ask the insurance company to insure your house on the basis of that value – explain where you got this value from, and confirm that this is what the Financial Regulator says that home insurance costs should be based on.
  3. If the insurance company still won’t insure for that value, then ask them again in writing to confirm why they won’t insure the house at that particular value.
  4. Submit an official complaint to your insurance provider along the lines of the fact that they’re going against the recommendations of the Financial Regulator with regards to how they should be valuing the house for rebuild cost purposes.
  5. If you don’t get anywhere with your complaint with your insurance provider, they you should raise a complaint with the Financial Services Ombudsman office.

Of course, you could just find the rebuild cost from the SCS documentation linked above and just go to a few other different insurance companies with the new numbers and get quotes from them. You’re likely to get a better quote from at least one of them, and you won’t have to deal with the crap above.

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