HOME AND CONTENTS INSURANCE TIPS FOR RENEWING, BUYING AND CLAIMING

Anyone who owns a policy of insurance will have experienced rapid and often unaffordable rises in premiums over recent years. The principal causes of this phenomenon are the recent claims experience arising from natural disasters and post-pandemic price inflation in the world economy. Some commentators are suggesting that premiums, particularly for property insurance, will be under pressure again in 2025 as a result of the catastrophic wildfires in California during January.

As a result of these circumstances, renewing, buying and claiming on an insurance policy can be a difficult experience. Therefore, we offer the following educational tips, suggestions and explanations that may reduce the stress, misunderstandings and cost that policy holders commonly experience.

Policies are not guaranteed renewable

An insurance policy on an asset such as a house or a car is known technically as a policy of “general insurance”. A key point to acknowledge is that (unlike most life insurance policies) a general insurance policy is an annual contract which the insurer is not legally obliged to renew. This might occur, for example, where you don’t maintain your house properly and the insurer decides to not offer a renewal because the risk of loss is calculated to be too high. Recently, it’s been predicted that insurance companies across the world will substantially increase premiums or simply refuse altogether to insure thousands of vulnerable properties in, for example, areas that are susceptible to flooding, storm surges and bush fires. There’s a serious message here if you’re thinking of buying a new home or investment property or if you have a property in a susceptible location. After all, what is the value of a property that can’t be insured?

It’s an honour system

Your so-called “duty of disclosure” is fundamental to the commercial relationship with your insurer. Basically, it’s an honour system. That is, when offering to insure your assets, the insurer is relying on the truth of the statements you make. So for example, if you state that you have an alarm system installed in your house and you don’t have one or it’s not operating, the insurer may choose to deny your claim.

Choose your words carefully

Most of us will have had the experience of speaking on the phone with an insurer where a message is played up-front stating that the conversation is being recorded for “training, quality and assurance purposes” (or words to that effect). These messages are always brief and matter-of-fact, but understand that whatever you say is then on the record forever. So choose your words carefully.

Don’t underestimate the cost of rebuilding

Buyers of insurance, especially on houses, often underestimate the cost of rebuilding, partly in order to control the annual premium. If you haven’t built or renovated a house recently, you may be surprised to learn how much costs have risen over the last ten years. Insurance company websites usually have a building cost estimator, but the resulting figures are only a rough guide. Therefore, before buying or renewing a policy, consider retaining a builder or valuer to offer some guidance about values. This problem may be partially overcome by purchasing a “replacement value” policy, but such a policy is likely to be more expensive. It’s also important to understand the meaning of “replacement value” which will be defined in your policy document.

Read the Policy Document

Insurance policies are legal documents, drafted by lawyers whose role is to protect their clients’ commercial interests. As a result, policy documents are often wordy, technical and hard to understand. So take your time to read it, understanding that it is a written contract between you and the insurer. Hopefully, when the time comes to make a claim, your insurer will act reasonably (most do), but understand that insurance is not a charity. It’s a business which must make a profit to survive, so it’s not uncommon for insurers to use words, definitions and exclusions that minimise their losses to the detriment of your financial interests.  Your insurance premiums are essentially pooled with other policy holders’ to fund any successful claims made to the insurer.  The insurer must ensure that the claims are lower than the premiums and their operating costs over the medium to long term in order to have a sustainable business.

Check the exclusions

Every insurance policy document (summarised in a PDS or Product Disclosure Statement) contains a comprehensive list of what is covered by the insurer and perhaps more importantly, what is not covered. Read this carefully. You don’t want to be in a position where at the point of catastrophe when you need your insurer most, your claim is denied because of an unexpected so-called “exclusion”. A common exclusion that claimants have discovered to their surprise after heavy rainfall is “retaining walls” (which having collapsed, can lead to other major damage).

Some insurance policies have a provision that denies a claim where a loss occurs while a property is vacant for an extended period, for example, while a person is travelling overseas on holidays or deployed on ADF service. Depending on your policy’s wording, this may be overcome by ensuring that your property is occupied or regularly visited while you’re away. Policies differ, so it’s important to check your policy and/or speak with your insurer to understand their expectations and requirements under the contract.

Check the flexible pipes

Clearly there’s a myriad of circumstances and events that occur about which insurance claims are made. One of the more common ones is water damage. Besides the floods and storms which regularly devastate communities throughout Australia, there’s another form of water damage that often goes unnoticed, but causes considerable grief and cost to many people. That is, burst flexible pipes under sinks in kitchens and bathrooms. Like every product, these pipes are of varying quality. Some of them can rust out quite quickly and burst under pressure, causing extensive damage. The message here is to have a registered plumber check the pipes on a regular basis and replace them as required. Why wait for the problem to happen and be forced into a potential battle with an insurance company when the preventative solution is less expensive than the cost of water damage if the pipes burst?

Increasing the excess

Many people reduce the cost of their insurance by increasing the “excess”, that is, the amount they have to pay before the insurance company pays. This can be a sensible strategy, but it’s important to think carefully about whether you can cover the excess should the need arise.

Using Comparison websites

Good use can be made of comparison websites when buying or renewing insurance policies. But remember that these sites may have a commercial relationship with insurers, so the policy you choose to buy may not be what you need. Another option is to compare policies for price and features through the independent website of the Australian Consumers Association.

Using a broker

You might also consider speaking with a licensed insurance broker.
You can source one through associations such as the National Insurance Brokers Association. Should you decide to do that, make sure you understand their fees/commissions and don’t hesitate to ask questions to ensure that your broker is acting in your best interests. 

Complaints about insurers

If you’re unhappy about the handling of a claim by your insurance company and/or about the advice you’ve received, you can lodge a complaint free of charge with the Australian Financial Complaints Authority. However, before you do that, you’ll need to have tried to resolve the complaint with the insurer. The AFCA website includes detailed guidance to consumers on the process.

Like to know more?  

The points in this article are by no means comprehensive, but are offered to prompt thought and necessary action. There’s a lot more educational material on the subject of insurance on the Centre’s website and at the Australian Securities and Investments Commission’s MoneySmart website.