Index Linking and how it works

Most insurance companies index link your rebuilding and contents sum insured at every renewal. This is done to reduce underinsured in the event of a claim. Insurers make this adjustment by applying the results of tracked indices of property rebuilding costs. They calculate these amounts from data provided by the Royal Institute of Chartered Surveyors (RICS), the Association of British Insurances and the Office for National Statistics.

Why does being under insured matter?

If you are under insured your insurer can reduce the amount of money paid to you in the event of a claim by the amount that you are underinsured. They will apply the “Average clause” which appears in most property insurance policy wordings.

If your building is insured for £250,000 but the actual rebuilding cost is £500,000. This would mean that you are under insured by 50%.  If you are 50% underinsured and you have a flood claim at your home that cost £25,000 to put right, your insurer would only be liable to pay £12,500. This could, of course, be ruinous for many people.

The effect index linking will have on you this year

We want to bring index linking to your attention as insurance premiums in 2022 will be index linked at far higher rates than previously. The factors behind this are a significant rise in demand and the increased cost of building materials, disruption to the global supply chain leading to scarcity of mateials including the much higher cost of freight, the pandemic and national lockdowns. Local shortages of suitable labour post Brexit are also affecting rebuilding and claims costs. Given this, we are starting to see insurers increasing rebuilding sums insured by 9 to 10% at renewal. This increase is just for index linking, it does not include any other increases the insurers might apply for claims inflation or losses that they have incurred.

What can you do to mitigate these increases?

  1. Work with us, we search the market for the best possible deals for our clients at every renewal. We work with a wide panel of insurers and can cater for most client’s needs.
  2. In addition, we have access to certain insurers who do not have an average clause within their policy. This does not help you if you are underinsured as they will only pay you to the level of cover purchased if you are underinsured, but at least there is not an additional penalty. Please ask us for a quotation, this insurers are not always the cheapest, but at least you will know where you stand if you have a claim.
  3. Lastly, you can check your rebuilding cost with a reputable building surveyor to ensure that you are correctly covered. We are able to provide this service for £150 + VAT through a RICS member giving you the comfort of knowing that you are properly insured and that the average clause could not be applied to your property.

Brownhill Insurance Group are experts in this field, with 1000’s of property owning clients, from very large commercial portfolios through to residential landlords who have just one property.

Speak to the experts, speak to Brownhill on 0208 658 4334 or email us at Info@brownhillgroup.co.uk