Irish homeowners have €39bn underinsurance problem – Aviva

Irish homeowners are underinsured to the tune of about €39 billion on their properties, as most have failed to increase their level of coverage to keep pace with a sharp increase in house rebuilding costs in recent years, according to estimates from one of the State’s largest insurers.

About 60 per cent of Aviva Insurance Ireland’s home insurance customers have not increased their rebuild costs in the past three years, despite repeated warnings from insurers and brokers about the problem, the company’s chief executive, Declan O’Rourke told The Irish Times.

“Underinsurance is a huge issue,” he said. “You might, of course, say that we’re just looking for more premiums, but this is a real issue if a place burns down.”

The cost of reconstructing a three-bed semidetached property in Dublin, the most common home type in the capital, has increased by 35 per cent since 2021, according to Society of Chartered Surveyors Ireland (SCSI) data, while a similar property in the northwest of the country has seen an increase of 54 per cent.

The increase has been driven by a shortage of labour and a sharp increase in the cost of construction products amid the spectre of inflation in the wider economy.

The Central Bank wrote to the heads of the country’s insurers in late 2022 warning them of the risks posed to consumer of not having sufficient home insurance cover as construction costs were on the rise. It directed insurers to ensure customers are properly informed of these risks when they take out or renew policies.

The regulator found on a thematic review of the issue that insurers often failed to make the practical consequences of underinsurance sufficiently clear to customers. The regulator said insurance brokers also have a duty to guide clients to suitable policies.

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“This issue is a key priority for Aviva and over the last number of years and in the last 12 months alone we have issued multiple proactive communications to our direct customers, including calling all customers whom we identified as having a high risk of underinsurance,” a spokesman for Aviva Insurance Ireland said, adding that the company continues “to look at every opportunity to create awareness”.

A common point of confusion is the so-called average clause that applies to most home policies, which can reduce the money paid out against a claim by the proportion to which a policyholder is underinsured.

Take, for example, a house with a rebuilding cost of €200,000 which is insured for only €100,000. If there is partial damage to the house of €50,000, then only 50 per cent of that amount will be paid out by the insurance firm, equating to €25,000, leaving the policyholder out of pocket for the remainder of the cost.

Aviva, the third largest home insurance provider in the Republic, said that for the 40 per cent of customers who have increased their rebuilding cost estimates over the past three years, their average rebuild cost has increased by 30 per cent over the period, to €385,000.

The insurer estimates that the underinsurance problem across the entire Irish personal home market amounts to about €39 billion, assuming its 14 per cent share of the market is representative of the wider industry.