Dáil Éireann Debate, Tuesday - 13 June 2023
339. Deputy Bríd Smith asked the Minister for Finance if his Department is aware of insurers writing to consumers on the issue of the danger of having homes underinsured, and so on; if the companies are now using the issue of potential underinsurance as a mechanism to reduce potential pay-outs to tenants for certain claims; if any regulatory authority under his Department has received any complaints or notification of this practice [27081/23]
View answerI am aware of the issue of under-insurance, which occurs when the sum insured on a property is less than the amount it would cost to rebuild or reinstate the property. According to the Central Bank of Ireland, this can leave a policyholder at risk of not being fully covered for losses were they to make a claim.
Under-insurance is particularly pertinent in the current inflationary environment. Rebuild values are increasing due to rising material, labour, and other input costs. The latest CSO Wholesale Price Index for April 2023 illustrated that the cost of building and construction “materials” rose by 11.7 per cent in the year.
Arising from this, in 2022 the Central Bank of Ireland conducted a Thematic Review of the risk posed to consumers of not having sufficient home insurance cover. This identified evidence of increasing levels of under-insurance in the market from 2017 to 2022. For those affected, the average reduction in the claim settlement was 19 per cent in 2021 – meaning that those customers would have incurred substantial costs to fully meet the value of their claims.
Upon completion of the Review, the Central Bank of Ireland required insurance firms to write to their home insurance policyholders to explain the risk of under-insurance and associated implications of being under-insured. Furthermore, the Bank noted that key information should be presented in a clear and understandable way to policyholders. This includes application of the “average clause”, a common condition in a home insurance policy that can proportionately reduce the amount of a claim being paid.
According to the Central Bank of Ireland, by the end of Q1 2023, all firms within the Review’s scope had issued communications to their policyholders that highlighted both the risks of under-insurance, and the importance of reviewing their home insurance details regularly to ensure adequate cover. The Bank further noted that these firms had reviewed their consumer policy documentation and online content to ensure that key information was being provided in a clear and understandable way.
Furthermore, the Bank has advised that it plans to collect further data on the levels of under-insurance from the main insurers operating in the market, in order to assess the impact of the actions that have been taken by firms.
My Department has also contacted Insurance Ireland in relation to insurers’ obligation to inform policyholders about the risk of being under-insured. It has advised that its members have been proactively communicating to their customers over the past number of months, following the Bank’s Review.
Finally, in situations where consumers feel they have been treated unfairly by any financial service provider, including an insurer, they can make a complaint to the Financial Services and Pensions Ombudsman (FSPO).
