On Sun, 31 Oct 2004 15:23:25 -0000, "RichardS" noone@invalid wrote:


"Phil Addison" wrote in message
...

I am querying the whole basis of the idea that the insurance should be
based on the need to re-build. I want to know why we can't be insured
just sufficient to be able to buy a similar replacement home.


Well, I'm sure that you would be able to hunt around and find someone who
_is_ prepared to insure on such a basis, but it'll most probably be a
bespoke policy, and very expensive.

Thanks Richard, you are one of the few that have understood the
question.

Why?

Well, one answer is "it's not the normal way that the industry operates",
but that in itself is not a satisfactory answer - "it's the most efficient
way for a basis of cover" would be slightly better. The industry is such
(in recent years) that if the basis you propose is considerably more
attractive then some company would be offering it. Insurance is a very
competitive industry.

I can think of many reasons why this would be the case, but the basic one
comes down to certainty - the insurance underwriter will want to be as sure
as possible that they can predict the likely costs that would be incurred
for a pay-out, and armed with that information along with the probability of
payout occurring that are able to set a premium that enables them to stay in
business.

On my scenario it's very straightforward to establish the payout. It is
simply an independent valuation of what the house is "worth" on the open
market. I'm not sure how that would be reached retrospectively though.
If there are a street of similar houses it would not be too hard, but if
it's an isolated country house I daresay an insurer would require a
recent valuation or the mean of three, so the insurance could be capped
if you had skipped that.

Rebuild costs are pretty well defined - for a certain size, quality, type
and location of a building it is possible to predict what cost of clearance
and construction will be. Only public projects and tv-inspired amatuer
property developer projects seem to go routinely awry.

Time taken to rebuild can also be pretty well predicted, therefore temporary
rehousing costs can be determined.

Therefore you've got a pretty strong basis for determining a premium.

Previously in the thread we seem to have widely varying figures, and
methods of arriving at them.

If you were to go down the route of payout enabling you to buy a new,
equivalent house, then things get horribly complicated and costs uncertain,
not the least because it could be very difficult to agree on what an
"equivalent house" might be (ok, easier in the case of a standard modern
estate house, or a terraced victorian house). Slightly different location?
Less desirable street, and you'd feel cheated. More desireable street and
you've broken a fundamental rule of insurance in that the insured should not
profit from the peril. the time taken to find a new place is by no means
well defined, so rehousing cost are essentially an uncapped liability for
the insurance co.

No, no... I never suggested you should be re-instated in an equivalent
house. I proposed being paid out the value of your current house and
being allowed to do what you will with it.

Upon purchase of the new house then title needs to be transferred to you,
and the title for your old "house" (now possibly a condemned shell) passes
to the insurance company, and they woudl be liable for all risks that go
with it, along with sorting out the legal process for transfer, transfering
the mortgage to the new house, etc.

More importantly, they now have an asset on their books to dispose of, and
costs of that disposal are very uncertain. In times of rising markets they
may profit from the land sale, but in times of static or shrinking markets,
the value of this asset might diminish. They'd have to pay for asset
revaluations for audit purposes, etc, so it would increase their costs that
way as well.

However, I'm currently doing some work for a very large insurance agent, and
many of the people I deal with are very knowledgable about the insurance
business, so if I get chance in a social moment I'll pose the question and
see what they come up with.

It will be interesting to find what they think.

Phil
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