Widespread misconceptions could mean your home insurance policy isn’t up to scratch

James Rowe: Home insurance may seem like a chore to deal with, but it is an essential protection. But why are so many homeowners having their claims rejected? We'll chat about this on this episode of Which? Money.

Hello, it's James in the Which? studio alongside our insurance expert, Dean Sobers. Dean, hello.

Dean Sobers: Hiya.

James Rowe: Nice to have you back, as ever. You've been writing about insurance, as ever, but home insurance this time for the latest issue of Which? Money magazine, which I have in front of me. The piece is interesting and fascinating, as it always is from you. The first stat you actually mention in the piece says that almost a third of home insurance claims are being declined. Do you want to tell us a bit more about that?

Dean Sobers: Yeah, so it's about three in 10. Depending on the type of product that you have – so whether it's a combined buildings and contents policy, a contents-only policy, or a buildings policy – the decline rates range between 38% at the highest and 29% at the lowest. So that's worst and best.

James Rowe: Yes.

Dean Sobers: For the majority of people, it's 29%, because that's the combined policies, which most people have. So that's about three in 10. So, yeah, that's where that figure comes from. That's the FCA's figures.

James Rowe: Yes, that's from the Financial Conduct Authority. We'll dig in on some more of these stats soon, but just to bring another stat to the attention as well – because I guess if a claim is declined, the next step for a lot of people is to go to the FOS, the Financial Ombudsman Service. So this is the independent resolution body. You've got some startling figures from there as well, haven't you?

Dean Sobers: Yeah. As you mentioned, if you have any kind of dispute – so it doesn't have to be that your claim's declined – but if you're unhappy with how the insurer treated you, you make a complaint with them. And then if you're unhappy with how that complaint winds up, then the next step is to go to the FOS. The FOS, Financial Ombudsman Service, they receive and deal with thousands of complaints every year. So what we thought we would do this time is we sent them a Freedom of Information request to find out what types of complaints they were dealing with in the home insurance space.

James Rowe: And tell us more. What did they come back with?

Dean Sobers: So the top three kinds of complaints – the top one, probably isn't a huge surprise, is ones about declined claims. Then after that, it was claim delays and claim values. These varied in terms of how they ranked depending on whether they were buildings claims or contents claims. But those were the big three in terms of how much they received.

But then what we also were interested in was how often they would side with the customer in resolving the complaint. They were most likely to uphold the complaint when it came to one that was about a delay. So for buildings complaints about delays, they would uphold that complaint 54% of the time, so more often than not. With contents, it was a little bit lower; it was 46%. Then again, they sort of swap places between two and three depending on whether it was buildings or contents, but the other ones that were high on the list for being upheld were claims repairs and claims value – so issues to do with how a repair was being handled, and then issues to do – disputes around the value of a settlement, whether the customer thought the insurer was paying enough, or some sort of dispute there.

James Rowe: I was going to say that maybe those stats sound surprising, but I think for a lot of people who have listened to us talk on the podcast before, have read your features –

Dean Sobers: We bang on about this sort of stuff all the time, yeah.

James Rowe: So when you got these numbers back, were you actually surprised, or did it add up to what you already believed?

Dean Sobers: Yeah, I can't say that I was hugely surprised there. They echo a lot of the problems that we've been talking about with respect to the home insurance space for quite a while. And we see this sort of thing come up in our customer surveys as well. So, yeah, it's not startling stuff, but it was just interesting to see that broken down.

James Rowe: Yeah, in black and white. Let's talk about low acceptance rates for claims as well, because you actually quoted Aviva and the AA in your piece. They were among some of the insurers who explain low acceptance rates as people – policyholders – as not understanding our policies. Do you think that's a fair analysis?

Dean Sobers: What I should first say is that they're not the only two insurers either that came up in the FCA's data as having fairly low claims acceptance rates in certain areas, and they also weren't at all the only ones to make that claim. It's quite a common response when we speak to insurers that seem to be rejecting quite a lot of claims, is that one of the big problems is that customers aren't understanding their cover when they come to buy it, and that their ignorance about how their policies work is being tested when they try and claim.

And to be fair, I think that's – they're kind of right when they say that. The fact is that insurance products are really complicated. They are full of nuances; they're full of exclusions. And customers, by and large, tend to be in a rush when they buy them. The average customer will be comparing lots of policies, lots of providers at the same time, so they won't be engaged in all the detail.

James Rowe: And maybe we might not even be in a rush. You say in a rush, but sometimes we just think, "I can't be bothered. I just want a policy, and I think it'll do a good enough job, and just tick the box and press the button."

Dean Sobers: Well, I think you can even be more charitable in a way, because if you're using a comparison site, you're probably skimming about maybe anything from five to 50 policies, right, when you're looking at the quotes? There's only so much attention you can give to each one. So it is going to be an exercise in scanning the top lines and looking at which one's cheapest, and making certain assumptions – you're going to have to make certain assumptions, because you can't read everything that you're going through. So, yeah, I think it's just about how your attention's divided. There is a lot to be across.

James Rowe: So on that, Dean, do we as customers – do we need to do more? Is the full onus on us as policyholders to make more of an effort to ensure we know what we're being covered for?

Dean Sobers: Well, I think this is one of the things, is that I kind of agreed with the idea that customers aren't engaged, and that can lead to them being under-informed about the cover that they have. But I don't think that that lets insurers off the hook, even though I agree this is a problem. Because I think at the end of the day, insurers compete with each other quite heavily on price, and also on creating a seamless, frictionless experience of buying the policy. So it's no surprise, really, that lots of their customers have gone through that process thinking about price very much at the top, and being fairly disengaged with taking their time when choosing policies.

And then I'd say, secondly, as well, if you're an insurer – if you're the average insurer – and your policies are letting customers down 30% of the time, then you really need to be focusing on that as a problem to be solved. And while customer education is part of that solution, you also have to accept that you're not going to get customers suddenly being fascinated and paying all sorts of attention to all the nitty-gritty details of the policies. You have to meet them where they are. You have to find out what sorts of things they're falling over, what sorts of assumptions they're making that turn out to be incorrect, and you have to try and make those mistaken assumptions less frequent.

James Rowe: It's a two-way street, isn't it? Some onus on us, some onus on them. And I guess policies are complicated even if you were to actually sit down and take that time to read it – thinking about optional extras and stuff like that. Also, storm damage, for example. I was reading a storm is often not actually clearly defined in a lot of policies. That seems unnecessarily complicated for us.

Dean Sobers: Yeah, so I guess to pick up – in a way, picking up this point about these areas that are trouble spots. We know from our claims customer survey, we know that three of the most common types of claims that are made are – so I think the most common one in our last survey was accidental damage. That was followed by home emergency cover. Home emergency is where you've got something that requires very urgent attention, like a plumbing issue or central heating or something like that. And then storm was up there as well.

Now, those first two, those elements of cover tend to be optional extras. So lots of customers, maybe to save a little bit of money, maybe through not necessarily realising what kind of hole their policy has in it if they don't actually add on that extra bit of cover, aren't going to add it. And then they're going to find out when they don't have their accidental damage cover when they drop their computer, or whatever it might be.

And then, yeah, you were asking about the storm side of things. So this is an integral part of most home insurance cover, but quite often it's one of those areas of insurance cover that can seem like obvious – it covers storms. But then when you start trying to get into the nitty-gritty of actually what qualifies as a storm, insurers can actually vary in that. So some might, for instance, include hailstorms, and then others might not, or snowstorms, or whatever it might be. The wind has to be above 55 miles an hour, whatever it might be. And this isn't always particularly clear. When we were looking at policies, we saw that a fair few didn't even explain what a storm was under their policy terms.

James Rowe: I want to go back to something you said before about partial payouts. This is where a customer might not get the exact figure, the amount of payout they think they're going to get. Why is this happening? Why are so many customers not getting as much as they expect?

Dean Sobers: So this can happen for – I think when I was writing my piece, I was covering – because there are quite a few – in our customer survey, which was exclusively of people who made claims, there were a decent number of people who claimed and had received – said that they'd received a partial payment rather than a full payment. And this can be down to a range of things.

Some of the big ones will be that there's an excess on the policy. This is going to be a factor with most policies that you have. There'll be some excess, which is an amount that you have to pay yourself.

Another one along with that would be that there are limits to what they will pay out in certain sections. So there are some policies that we looked at in our policy analysis which will pay maybe like £500 for a mobile phone, whereas others might have higher limits for individual things.

A third one that comes up a reasonable amount, and actually it comes up in the FOS complaints as well, is this issue around valuations, around a difference of opinion between the claimant and the insurer over how much it would cost to put the customer right, to restore them back to where they were.

James Rowe: Because this is always a big thing when you take out a policy, you have to go through all those questions and almost value all of your possessions, effectively, don't you? And so when you come to claim, you have to try and ensure that you've actually filled that out correctly, so you know you're actually going to be covered when you do claim. Is that fair?

Dean Sobers: So it's something that you are usually asked to do when you're buying home insurance. You will usually be asked about the home's rebuild cost, which is how much it would cost to rebuild it from scratch if it was devastated by a fire or something like that. And you're also asked, what's the total value of your contents? Often they'll say, if your house was turned upside down, what would fall out? What would be the total value of that?

James Rowe: So, again, that's a big onus on us as customers, isn't it, to try and make sure those values are correct? It was interesting when you said about mobile phones, for example, it might just be £500. So – I'm going to take the excess to one side just for the sake of making this easier – but let's say your phone was actually worth £800, you'd be £300 out of pocket if you were to try and claim for that mobile phone being lost or damaged.

Dean Sobers: Yeah. And what can also be the case, it sort of broadens it out from just mobile phones – that was just one example – but when it comes to contents, so maybe you've worked out you've got, let's say, £40,000 worth of contents in total, so you just assume that they will pay up to £40,000 for any loss of contents that you've got. But actually, pretty much all policies will have what's called a single-item limit. So there will be an amount – again, this varies between different insurers – but it'll be an amount within that which will be a maximum that they'll pay for any single item. So it might be £1,500, £2,000, something like that. So if you've got an item which costs more than that, and it hasn't been specifically declared and identified as something which needs more individual cover, then they will only pay you part of the way up towards its full cost.

James Rowe: So there can be plenty of things that fall under some of these brackets. You know, even – we won't dwell on it, but even things like matching sets. So this could be like a three-piece suite, for example, if one's damaged. There's so much to consider.

And also just to stick on payouts as well, insurers might offer a cash settlement as well. So it sounds like to me – correct me if I'm wrong – but they might not go through the full process. They might just say, "Okay, how about we settle? We'll offer to give you $X$ thousand pounds. Would you like to accept?" And then you can, as a customer, say, "Okay, yes, I will take that amount." But that can be to your advantage, but there can be some flaws to that as well.

Dean Sobers: Yeah, so this is quite a complex area, but broadly speaking, an insurer can settle your claim in one of two ways. One is they can take care of replacing what you've lost, or rebuilding what's been damaged, or repairing it, or what have you – they can do it themselves. Or they can agree with you on an adequate cash amount, so that you can take the cash and you can do that yourself.

And obviously claims can be very complex and have lots of different parts to them, so it might be that for some things – so, for example, if there was flood damage, it might be the case that they organize all the construction work to rebuild your house, to restore your house, but then they pay you cash to replace so that you can go out and re-buy the contents that have been destroyed.

In some cases, a cash settlement can just be a quicker way of – instead of you having to wait on them to go out and buy things, or to coordinate things, they just give you the money, you can go out and sort of take care of that yourself. However, the more complex a claim gets, the more of a potential gamble that can become.

James Rowe: Because let's say, for example, as you said before, you have a devastating house fire and the house needs to be rebuilt, they could offer a cash settlement for that to then pay. Or even just for a roof coming off, for example, they might offer to pay you $X$ thousand pounds. Let's say, for the sake of argument, let's say they offer to give you £10,000 for a new roof – I've never had a new roof, I'm not entirely sure if that figure is accurate or not – however, let's say they offer to give you £10,000, you accept, but let's say it spirals to £20,000, £25,000. What on earth happens there? Are you left in the lurch there?

Dean Sobers: Well, yeah, so this can be the problem if you accept a cash offer. Now, the cash offer, they shouldn't be able to offer you an amount that they know or believe isn't going to be sufficient to cover the claim, but this is something that does come up as an issue. Because sometimes it might be that at the point that you accepted the cash offer, it actually wasn't fully clear what the full extent of the damage or the cost would be.

So, and if you don't have specialist knowledge – you raised the point that you didn't really know how much it costs to repair a roof, right?

James Rowe: Imagine most of us don't.

Dean Sobers: So suppose I'm an insurer and I look at your roof and I say, "Okay, £20 grand." Now, I'm not saying that this is what all insurers do or anything, but if I just put that figure to you, you've got no real basis for judging whether or not that's going to be adequate. It might sound like a big amount of money, so you might sort of take it, but then you might go and get a load of quotes and then it turns out, oh no, you're going to need twice that, or these things can kind of spiral.

So if you accept – especially when you're getting into this kind of domain of tens of thousands of pounds or whatever – it's not advisable – well, you kind of really need to be very confident that you know what the actual – what a realistic, likely cost of you organizing these repairs is going to be, because if what you accept turns out to be inadequate, you're probably not going to be able to go for like a top-up.

James Rowe: Can we talk about underinsurance? I was actually struck by something you wrote, because you said a growing concern is underinsurance. Why did you write that?

Dean Sobers: So I wrote that because towards the end of last year, there was some stats put out by a company called Rebuild Cost Assessment, the building surveyor. So what they put out last year was an estimate that 68% of UK homes were underinsured.

James Rowe: That's staggering, isn't it?

Dean Sobers: It is staggering. I guess what we probably better sort of say is what underinsurance actually is.

James Rowe: Yes, I suppose we should.

Dean Sobers: So underinsurance is where the amount that your policy is based on – so if we go back to those figures that you plug in when you're running your quote, so what the rebuild cost is of your property, and what the total contents value is – if those figures – say you've put in half what they're actually worth, theoretically, you might end up with a policy which is based on those figures which are too low, and it therefore means that you are underinsured by 50%.

It does get more complicated than this, but this is the basic principle. So what this company's basically saying is that the vast majority of properties are insured to sums which are too low than they actually need.

James Rowe: And is there a way to avoid that?

Dean Sobers: So on one side, I think it's very plausible that lots of people have plugged in faulty estimates when they're arranging their insurance. Lots of people, for example, confuse rebuild cost – which, as I said earlier, is the cost of rebuilding your house – with the actual value, the market value. They're two different things, but they're very easy to confuse with each other.

And the total amount to replace all of your contents, that's often going to be a finger-in-the-air estimate, right?

And then on top of that, lots of people don't review these figures over time. We did a little bit of survey research on this, which I wrote about in the article, where we found that lots of Which? members hadn't recently checked that the figures that they had to ensure that they were up to date. And obviously something that happens over time is you get inflation, and these costs and values change. So even if you've put in a correct one on your policy five years ago, if you haven't revisited it, it might have changed and you might have a policy that's lagged behind the actual costs.

So the top line is, this is really important stuff, and you should try your best to keep on top of it. There are calculators and tools out there. The Association of British Insurers has one on its website. A number of the comparison sites will also have these tools as well, that help you estimate what figures like your rebuild cost will be. So this is an important thing to do.

This all being said, what we haven't seen – and I kind of did look around, because I was curious as to whether this was actually playing out, that lots of people when they came to claim, that they were finding that they were underinsured and they weren't being able to get a full claim because they'd said their house rebuild cost was, let's say, £100 grand and it turned out to be £200 grand, or whatever it might be. Didn't find much evidence of this. So this was looking at our survey, what comments people were leaving in our survey. This was looking a little bit at FOS data, and this was asking a few insurers and also the British Insurance Brokers' Association whether this was something that was coming up a lot at claims.

The impression I get is that it isn't happening all that much, and one of the reasons is is that a lot of insurance policies – and we've seen this from our policy analysis – have safety nets or cushions in them to prevent customers from accidentally underinsuring. So lots of them, for example, will have very high default sums insured, so that's like the maximum cover limits. So you might have a policy that will cover you just automatically up to like £500,000, or sometimes more.

So that's one thing, and then you have others as well that will automatically increase the cover on your policy by inflation.

James Rowe: So every year you renew, it goes up with inflation naturally?

Dean Sobers: Yeah, there's an automatic assumption that your house rebuild price has increased. And then also some insurers will also have tolerances, so they'll say, "All right, we've got this figure. If the real figure turns out to be a certain percentage more than this one, then you'll have to make up the difference, but there will be that little bit of tolerance, yeah."

So these things are all there, and it seems like we're not getting a huge number of people – at least that we're hearing from – talking about having these issues with underinsurance at claims. That all being said, I'm not saying that this means that you don't have to worry about it, and that you shouldn't pay attention to it as a customer. You should definitely pay attention to it, because it does sometimes happen, and when it does happen, it can potentially mean that you're out of pocket potentially tens of thousands if not more, if there's been a real significant underinsurance situation. So it's really important to double-check this stuff, and to try and keep on top of it.

James Rowe: Dean, I think it's probably about time we mentioned some good providers, some decent providers, in fact some Which? Recommended Providers, because you have been doing plenty of research and analysis lately, as you've been saying. So who are those Which? Recommended Providers this time round?

Dean Sobers: So what we did was – I mentioned our customer survey, so that's over 3,000 claimants to find out what they thought of their providers, what they thought of their claims experience. And then what we also did was we looked at policies from 30 insurers – 72 policies from 30 insurers – to assess their cover, basically.

Which? Recommended Providers, we had two of them this year. Those are providers that really did well in our customer survey, as well as meeting certain minimum standards in terms of their cover levels. And those two providers were NFU Mutual and Tesco.

James Rowe: Lovely stuff, and people can read those reviews in full on the website, can't they?

Dean Sobers: Yeah, it's all up there on the website. You've got detailed reviews of all the providers, and you've got our tables as well.

James Rowe: And one of the best things now, I think we mentioned it last time you were on the podcast, you can click through to a comparison site via Which? and you can use a comparison site, and you can see our customer scores, you can see our reviews alongside the quotes as well. So now you can see – which I think is the best thing in the world – you can see what the providers are quoting you, and in a lot of instances, you can see what we at Which? think about the providers. I think that's just a dream come true for a lot of people who are looking for a good provider now.

Dean Sobers: Yeah, we think so. It's something that a lot of the feedback that we've received about what we had before, just our reviews and just our cover levels, was that the real missing thing here is price. So what we've tried doing here is working with our partner here and bringing those two things together.

James Rowe: It is brilliant. And just a quick word on actually using a comparison site as well, because I know people have probably read and heard you on the podcast before talking about how to effectively use a comparison site, it's well worth just to reiterate, once you've seen the price, the quote, and once you've decided which one you think you might want, is to actually do some reading on what the policy says, right? Don't just click it just because you like the price and you like our score. Have a good read to make sure it fits you.

Dean Sobers: Yeah, you will. So we've given our view as to how good we think the policy is in general, and how well we think the company treats its customers in general. That's not going to quite get there in terms of working out whether it's the ideal policy for you. So the only real way to establish that is to drill down into the policy detail, trying to think about what it is that you want and what it is you expect, and checking that it's there and that it's addressed in a clear way.

James Rowe: All those links as well to our reviews and to the link you'll need to go and look at those quotes as well through our new partnership are in the show notes, so make sure you click down there for anything you might find useful.

Dean, before you go, just any final thoughts on the research you've done, any of the stats you've seen? I know you said a lot of them didn't actually surprise you too much, or is there anything you want to leave everybody with for today?

Dean Sobers: I guess one thing that we do try and say is that a policy that's perfect for you one year might not remain suitable the next year. We've been talking about things that change, like your rebuild cost or things like that, but just generally speaking, how – so for example, you might have had a policy that had bicycle insurance, and then next year you've got rid of the bike, but you've still got this bicycle cover. So your circumstances change over time, and it's right to make sure that the policy that you have is suiting that.
And then I guess the other thing that changes, the price of the insurance policy will change over time. It might have been a bargain one year, and it might be next to unaffordable the other year, and there might be something which delivers cover which works just as well for you, but it's like half the price. So just continuing to check year on year is something that I'd encourage all listeners to do. It's not the most exciting, fun thing to do, but –

James Rowe: It's got to be done.

Dean Sobers: Yeah.

James Rowe: Read our reviews, review your own policy, and review your own numbers. I think those are the three key takeaways, at least for me anyway.

Dean, thanks very much for your time. Fascinating as ever.

Dean Sobers: Thank you.

James Rowe: That brings to an end another podcast from Which? There's loads more for you to read about everything we discussed today, just head to the episode description for more useful everyday advice. There you'll also find an exclusive offer for podcast listeners like you to become a Which? member for 50% off the usual price, giving you access to our product reviews, our app, 1-to-1 personalised buying advice, and every issue of Which? Magazine across the year. Plus, your membership helps us to make life simpler, fairer, and safer for everyone.

If you'd like to know when we release a new episode, then make sure you press subscribe wherever you're listening. That way, you can be one of the first to listen. And for any questions, comments, or anything in between, follow us on social media @WhichUK, or email us: podcast@which.co.uk. Goodbye.