Index Linking – Is It Enough?

Posted on by Alex

Most Household Insurers automatically apply indexation to their policies. This sometimes only applies to the Buildings and General Contents sections, but many High Net Worth insurers also apply an indexation formula to Fine Art and other Valuables, such as Jewellery and Watches.

To arrive at a rebuilding cost indexation, insurers mostly use the RICS/BCIS Rebuilding Cost Index. For General Contents the Consumer Durables Section of the General Index of Retail Prices (Retail Price Index) is used.

Having said that, to get index linking into proper perspective you have to start with the right figures!

The following web sites will give you access to specialist advice on how to get your initial sums insured correct.

www.bcis.co.uk

www.rics.org

www.abi.org.uk

However, in many cases you will find that these guides are inaccurate, especially if you live in a Listed property or if the construction of the house is non-standard. In such circumstances you should contact a professional, such as Arbiter www.arbiteradjusters.com

Is it enough just to have your policy index linked?

Even though inflation is currently at a long time low, the cost of repairing or rebuilding properties has risen out of proportion with other costs. Not only have the costs of raw materials such as bricks risen by some 24% since 2010, but as demands to build new houses grows the wages paid to skilled tradespeople are also rising. The Rebuilding Cost Index should take these sorts of factors into consideration, but the Index can only look backwards and if your repairs are delayed you could find that you are underinsured. You may wish to check that you have a buffer in place with your Buildings insurance sum insured to allow for delays and rising rebuilding costs.

When it comes to General Contents and Valuables the Retail Price Index is somewhat of an inaccurate guide.  Some items, such as electrical equipment and white goods, are cheaper to purchase than before, whereas clothing and designer items are becoming more and more expensive.

Antiques and Fine Art values vary wildly from swings in fashion with many brown furniture items now only worth a fraction of their former highs and watercolours no longer fetching good prices either at auction or in galleries.  A professional valuation service, such as Susan Orringe at Orringe Consulting www.susanorringe.com can give you a clear picture of what your fine art is currently worth.

For Jewellery and Watches, rarity and design dictate the current value. Some values have more than doubled in the past five years, so if you have a valuation that is more than three years old you should look to have it updated by a firm such as Prestige Valuations www.prestigevaluations.com

From 1st November the Government Insurance Premium Tax rises from 6% to 9.5%. This will have a major impact on clients’ premiums and after the application of insurers’ indexation we anticipate that the average cost of renewing a policy will rise by between 6.5% and 8%. Ensuring that you have all your valuations up to date could help you to negate these increases and to negotiate better terms with your insurers.