Questions Your Insurance Company will Ask When you apply for Household Insurance
When you apply for a household insurance policy, your insurer will typically require the following information from you.
The insurer will need to know which people want to be party to the household insurance contract, e.g. is it just one of the people living in the house or more. The exact nature of the insurable interest the applicant has in the building will need to be established, for example, whether as owner or mortgagee. If there are joint applicants, the nature of the interest of each must be clarified.
This is a crucial factor in assessing the premium and the household insurer will want to know if the applicant's address is the same as that of the risk address. Different geographical areas represent a different level of risk.
This is the address at which the applicant wants household insurance. Most insurers use postcodes on which to base their premium, and take into account claims statistics for the postcode in question. Some areas represent a high level of risk, for example, those prone to subsidence, flood or storm damage or burglaries.
Some insurers use geographical computerized data systems to assess the risk for the area in question. A typical computer system will divide the area into districts, e.g. postcode, and will highlight, using different colors, the areas particularly susceptible to specific perils such as subsidence, flooding (rivers and coastal) and storms. This is known as environmental mapping.
The insurer will also wish to make further enquiries if the risk address is not the same as the postal address. Information will be required on where the applicant lives to identify if the property is:
• unoccupied permanently;
• let out to tenants; or
• used as a holiday home.
All these factors could increase the risk exposure and a higher premium would be charged.
Such information is requested as it may indicate a moral hazard. For example, where a person works from home, the insurer will want to have full details as the type of occupation could represent a higher household insurance risk, e.g. storing chemicals at home. Some occupations could result in visitors to the home, e.g. an accountant, and thereby increasing the public liability risk.
Alternatively, it could improve the household insurance risk if a person is retired and is at home most of the time. Some insurers offer a discount for people aged over 50 or 55, as it is deemed that there is a lower risk profile for these customers as often the home is occupied during the day and/or the house is kept in a better condition.
Date of Birth
This information may be relevant for premium rating purposes, e.g. for age discounts and also for cross-selling if the company wants to try and sell other suitable products to the customer.
Again, this information may indicate a moral hazard.
Household Insurance History
If other insurers have imposed special terms or premiums or have declined to insure the applicant or property in the past, the insurer will wish to investigate the actual circumstances as they may not want to cover the risks either.
Household Insurance Claims or Loss History
If there have been losses in the past, whether personally experienced by the applicant or by another member of the household, the insurer will want full details. The frequency and severity of losses could indicate, for example, that the home is in a poor condition.
Construction of the Property
Full and accurate information on the construction of the building requiring household insurance is very important if the insurer is to make a sound decision on whether to accept the risk or not, and if they do, what premium to charge. To help in the decision-making process they will require information on:
• the type of property, is it a house, bungalow or flat?
• whether it is detached, semi-detached or terraced;
• materials used in the construction, e.g. brick, stone or concrete etc;
• type of roof, e.g. slate's, tiles, metal, concrete, thatched or flat felt roof.
Where the property is not classed as 'standard construction', for example, a timber-framed thatched cottage, or a flat felt roof extension, there is likely to be an increased risk of fire or storm damage and an additional premium will usually be charged or an increased excess/deductible applied.
If the risk address is a flat, information will be required on whether it is self-contained with its own lockable entrance door and whether any facilities are shared.
The insurer will need to have confirmation that the property is structurally sound and well maintained.
Where there are additional risks, such as:
• evidence of damage due to subsidence, heave or landslip; or if the property is located in an area which is liable to flooding etc.;
• the household insurer will require further additional information and may obtain this by requesting a survey to be carried out.
Age of Property
Insurers may have a policy of charging higher rates for older properties as the cost of repair can be greater, or they may decide not to insure older properties, preferring to focus on newer and better constructed houses.
Number of Rooms or Bedrooms
This is important information where the insurer's policy is to rate on the number of rooms or bedrooms (for contents insurance only). Household insurers may state the minimum recommended sums insured and if the actual sum insured is below this recommended amount, underinsurance will be taken into account in the claims settlement.
The insurer, in assessing the risk, will need to understand if the property is owned, mortgaged or rented by the applicant. Where the applicant is the tenant, i.e. the property is rented, buildings cover may not be required but where it is, the insurer will need full details of the owner of the property and the terms of any lease or agreement under which the occupier is responsible for household insurance.
Where contents cover is being applied for, if the property is rented, or the applicant lives in a flat which is not self-contained, the underwriter will need full information to assess whether they want to cover the risks or not.
Use of the Property
Insurers will need to know:
• Whether the property, or any part of it, is used for business purposes, and if so, the frequency of any visitors, as this may result in an increased risk of theft
• If the property is unoccupied for extended periods.
Some household insurers may also require information on the number of people occupying the home. All these factors may represent an increased household insurance risk which may be considered as unacceptable to the insurer.
Insurers may give a premium discount if the home is occupied during the day.
Insurers will need to have full information on how the property is secured. A minimum standard of security will be expected.
A higher standard will be required in certain circumstances, for example where there is:
• a higher sum insured, e.g. properties with more than five bedrooms;
• the customer has a poor claims history;
• properties situated in certain postcodes;
• properties where there is a frequency of un-occupancy;
• a high contents sum insured or where there are valuables.
• Some insurers may give a premium discount if the customer has a burglar alarm fitted which is serviced regularly by an approved burglar alarm engineer.
Insurers may provide additional premium discount if the customer belongs to a neighborhood watch scheme.
For buildings cover, the sum insured will be based on the rebuilding cost. Usually the value placed on this cost will be the actual cost of rebuilding and will include the cost of demolition, site clearance, compliance with local authority and other statutory requirements together with fees for architects, surveyors and/or engineers.
There are many factors that could influence the rebuilding cost of a property. For example:
• the geographical area;
• materials used in its construction;
• type of property - town house, semi-detached or mansion;
• Age and size of the property.
If an insured peril occurred that resulted in the whole house needing to be rebuilt, the insurer would have to ensure that the house was built to the same standard as that before the incident. Consequently, if high-quality materials had been used previously, the calculations on rebuilding costs would have to reflect the cost of replacing these.
Where there is any doubt about the rebuilding cost, the customer should consult an independent surveyor.
There is a view that insurers could use market values when calculating the rebuilding costs. However, this approach has shortcomings in that it fails to take into account the factors affecting market values, such as quality of surrounding area. Consequently, such figures should not be fully relied on and their use, if any rebuilding was required, could lead to disputes which could not be substantiated.
It should be noted however, that, even when a rebuilding cost figure has been established, the customer may feel that the premium is excessive, as a total loss is unlikely.
For contents cover, the sum insured will depend on whether the basis of claims settlement is one of indemnity or replacement as new. To assist the applicant in calculating the value of their contents in each room and the total value of their entire contents, insurers usually include tables or charts in the application form.
As this process of calculation can be confusing, some insurers, to make it simpler, base their premiums on the number of bedrooms in the property. Where items are valued over a certain limit, these will be classed as valuable or 'high risk' items by the insurer and a written valuation from an expert for submission to the insurer will usually be required. It will also be necessary for the customer to have the items revalued within a specified period.
Size of Building
The policy premium payable includes consideration of the size of the property being insured. Depending on the insurer, the policy may be rated on one of the following bases:
• floor area;
• number of rooms in the house;
• or S number of bedrooms.
The main reason for this question is for the insurer to check that the sum insured is adequate if a claim is made.
To ensure the insurer has full understanding of the risks they are insuring against, they will need to be aware of any other interests in the property; for example:
• a mortgagee where the property is mortgaged;
• or a freeholder if the property is leasehold.
The noting of an interest does not give that party the status of 'policyholder' but insurers will usually notify the party of any relevant happening, for example:
• when a claim is made;
• or the policy is cancelled.
This allows the third party to take action to protect their interest in the property.
These are the main questions you should expect to answer when you apply for household insurance.