"Phil Addison" wrote in message
...
On 30 Oct 2004 23:29:02 GMT, (Andrew
Gabriel) wrote:

In article ,
Phil Addison writes:
On 30 Oct 2004 20:34:46 GMT, Jo wrote:

Hello, hello, is there anyone listening out there?

"House Rebuilding Cost Assessments for Insurance Purposes

Most domestic house insurance policies require that the sum assured
is the full rebuilding cost of the property.

Why?

All insurance works that way. If you make a claim, and you
were only insured for half the full cost, then you will only
get half the claim, even if the claim is only for a 100th of
the full cost. Same with home contents, etc. That's one of
the things the insurance assessor is checking when he/she
calls during a claim.

Yes, I'm well aware of that Andrew. My previous remarks are all on the
basis that I am fully covered and paid up.

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.

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.

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.

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.

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.


--
Richard Sampson

mail me at
richard at olifant d-ot co do-t uk

On Sun, 31 Oct 2004 09:49:23 -0000, "Set Square"
wrote:

In an earlier contribution to this discussion,
Phil Addison wrote:

The risk you are insuring yourself against is that of needing to be
re-housed. I can think of no reason why that has to be achieved only
by re-building. Taking the car write-off analogy, why can't the
insurers just write you a cheque for the book (market) value of your
house (less the sell-on value of the site). You are then free to use
that as you wish to re-build or move elsewhere.

The analogy doesn't quite work - because there are no scrapyards for crashed
houses.

It's the transaction that counts, not the location - it's just that the
scrap merchant comes to you, in the form of Mr Builder, to take the
remnants off your hands.

AIUI you wouldn't be allowed by your local authority simply to abandon a
wrecked house and move on.

And how, exactly, would they stop you? They can ask and demand, but I
think their only sanction is to compulsorily purchase the wreckage from
you. i.e they give you money, just what you might want! Anyway, I
wouldn't suggest just leaving the valuable plot to rot. The owner would
more likely put it in an estate agent's hands to sell, and it would be
his choice whether to clear it first or make an allowance for clearing
costs in the sale price.

Would you be happy if your next door neighbour did that?

If he (the owner) is daft enough to want to abandon it, I may be able to
buy the deeds from him at a very favourable price!

The subject is a bit academic anyway. In most cases, the cost of re-building
is considerably *less* than the market value of the property. So if you were
insured for less than the re-building cost, you wouldn't have a hope in hell
of buying another equivalent property with the insurance payout.

Ahh.. if that is correct you may have hit on the answer to the question
"Why?".

However, I'm still not happy that we are clear about what is meant by
"re-building". I suspect it does not mean re-building to look like the
original, but merely "building" a modern house on the site with
"sympathetic" features. For instance, further up my road the end-terrace
house of a Victorian terrace has been rebuilt at some point, in the 70's
judging by the style. It is a good 3 meters shorter at the apex than the
rest of the terrace that it now abuts due to lower floor/cieling levels
and a less steep roof line.

Phil
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On Sun, 31 Oct 2004 09:59:45 +0000, Stefek Zaba
wrote:

Phil Addison wrote:

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.

If "we" own the house outright, such a decision is ours to make. But
most "homeowners" have a mortgage, and the mortgage provider wants very
much to cover their backside, which they see as meaning that in the
event of a total loss, a property with no less than the existing one's
full resale value will appear in place of the smoking heap. (They would,
I presume, argue that even if the outstanding mortgage was only, say,
30% of that value, their lending criteria had given that mortgage on the
basis of covering a particular proportion of the purchase cost, and
you'd be nadgering their carefully-constructed risk-of-nonrepayment
profile if you put up a yurt in place of the elegant Georgian pile.
Though if they got their outstanding mortgage repaid, I don't see it's
any business of theirs what your future housing derangements might be...)

No, they don't care about that, they just want to know their monetary
investment is safe. The terms of the mortgage deed give them first call
an any insurance payout to clear the outstanding loan - that's why they
insist you have insurance.

The insurance company will check if there is a mortgage on the property,
or any other "interested party" involved, and would only pay out the
balance to the owner, assuming there is actually some positive equity.

I don't see that this impacts on the basic principle I am asking about.

Phil
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On Sun, 31 Oct 2004 14:51:27 -0000, "Owain"
wrote:

"Set Square" wrote
| Phil Addison wrote:
| The risk you are insuring yourself against is that of needing
| to be re-housed.

No, because the council have a statutory obligation to provide you with
housing eg after a fire. The risk is that of having to rebuild the house to
soemthing like it was in accordance with current regs.

So you would rely on the council to re-house you? I don't think many of
us who have struggled to fund our own lives would wish to take that
option.

| The analogy doesn't quite work - because there are no scrapyards for
| crashed houses.
| AIUI you wouldn't be allowed by your local authority simply to abandon a
| wrecked house and move on. Would you be happy if your next door neighbour
| did that?

In many parts of the country, detached properties are probably in the
minority, with semis or flats being more common. The obligations under
Scottish law to provide support for adjoining houses within a building can
be traced back to Roman law.

Interesting point. If correct that would mean that some of the payout
might have to be set aside to build some form of buttressing to stop the
party wall from falling in. Maybe that cost gets shared with the
adjoining properties insurers?

Phil
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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
The uk.d-i-y FAQ is at http://www.diyfaq.org.uk/
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On 31 Oct 2004 11:13:11 GMT, (Huge) wrote:

Phil Addison writes:
On 30 Oct 2004 20:34:46 GMT, Jo wrote:

Hello, hello, is there anyone listening out there?

"House Rebuilding Cost Assessments for Insurance Purposes

Most domestic house insurance policies require that the sum assured
is the full rebuilding cost of the property.

Why?

Because they do. It's a contract. If you don't like it, don't sign it.

Thanks for hugely uninformative answer.

Phil
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On 31 Oct 2004 17:14:15 GMT, (Huge) wrote:

Phil Addison writes:
On 31 Oct 2004 11:13:11 GMT, (Huge) wrote:

Phil Addison writes:
On 30 Oct 2004 20:34:46 GMT, Jo wrote:

Hello, hello, is there anyone listening out there?

"House Rebuilding Cost Assessments for Insurance Purposes

Most domestic house insurance policies require that the sum assured
is the full rebuilding cost of the property.

Why?

Because they do. It's a contract. If you don't like it, don't sign it.

Thanks for hugely uninformative answer.

Ask a ****ing stupid question ...

But you to answered it. Does that mean you're ...; no, surely not.

Phil
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You may be interested n this little true story.

A man has a house, bought for $155k on a mortgage.

In difficult times, he cancels his insurance policy on it. And
remorttgages it cheaper. No one asks to see a valid isurance certificate.

Times improve, and the wife is aked to re-insure it.

Not understanding that the house is in fact completely uninsured, the
wife gets a contents plicy on it.

The house burns down to a shell.

Ther is a huge legal kerfuffle, with tehman claiming that if the
mortgage company have by dnt of having crap paperwork, not checked the
validity of isnurance, its their problem.

However, finally the shell and plot is auctioned for £150k, and all is
cleared up.

The cost of re building the shell is about we estimate £100k, and the
new house goes for £300k.

One thinks that the ownre old hae, in fact, simply auctioned the
plot/shell himself,except the mortgage ompany wouldn't have let him.

The mortgage company has lien over any property it lends against: Their
concerns are purely and simply to have insured the difference between a
worst case accident and the cost of getting their money back. IYSWM.

You, as a property owner, faced with a wholly owned burned out shell
etc, may do what you like up to and including abandoning it and moving
on. However its hard to establish what the claim value should be if you
do this. Whereas if its rebuilt with reasonable quotes presented, they
can agree to pay the rebuild cost.

In the case of a mortgaged property, you are not free to act: The
mortgage company will more or less insist that you either contuinue to
pay mortgage on the full value of the loan,or repossess the house.

The only case in which you might care to insure over the rebuild value,
is if there is a hance that teh whole site might become uninhabitable
due to e.g. falling in teh sea, or becoming contaminated with
radioactive waste. Most insurance companies won't touch that sort of
policy anyway.

Note that if teh estimates for rebuild exceed the insured for value, you
won;t even get teh full insured value out of te insurance company: You
can lawfully be adjusted down to the fraction of the insured value
represented by the insured value versus the rebuild cost.
i.e if your house cost 500k to rebuild, and its insured for 400k, you
may only get 4/5 of 400k. or 320k.

I've come aross that gotcha in contents insurance. Adjuster started
saying that 'my furbniture was worh far more than insured for, therefore
I as unde insured, therefoare he would only pay out 50% of te value of
the TV etc stolen, until I made a point that none of the furniture was
bought new, and was at best reclaimable from skips and junkyards at a
couple if grand. That shut him up.

Do take insurance seriously. IF you e.g. have a flood, and they consider
the house is under insured, you may not get full returns on e.g. flood
damage een if te sum you claim is far far less than the 'insured value'.

Read the fine print, and any issues get a letter in writing clarifying
their policy. hat you an wave in their faces if you ever need to. AND
make sure its not in a cardboard box in teh attic. Fireproof safe.

Mind you, the letters to and from te company in teh case of the real
example I quoted must have got burnt, because thats whta teh man
claimed, that he had done X and Y, and it wasn't his fault the the
mortgage company had lost their copies when they got taken over etc etc

On Mon, 01 Nov 2004 10:59:21 +0000, The Natural Philosopher
wrote:

That's an excellent clarification of what might happen. I hope you don't
mind that I have run it through spell check to fix the typos.

You may be interested in this little true story.

A man has a house, bought for £155k on a mortgage.

In difficult times, he cancels his insurance policy on it, and
re-mortgages it cheaper. No one asks to see a valid insurance certificate.

It wouldn't be of use anyway once it expired. Presumably that was the
reason that mortgage companies used to insist you did the insurance
through them. Since that privilege has been removed from them, it looks
as though there is a loophole by which you can become uninsured and
they don't notice.

Times improve, and the wife is asked to re-insure it.

Not understanding that the house is in fact completely uninsured, the
wife gets a contents policy on it.

The house burns down to a shell.

There is a huge legal kerfuffle, with the man claiming that if the
mortgage company have, by dint of having crap paperwork, not checked the
validity of insurance, it's their problem.

Did he win that case?

However, finally the shell and plot is auctioned for £150k, and all is
cleared up.

Presumably that £150k all went to pay off the mortgage company, and your
man was left without a replacement house. Was it the case that he had
not paid off any of the mortgage, so the house wasn't really his anyway?

The cost of re building the shell is about we estimate £100k, and the
new house goes for £300k.

You lost me here... Do you mean someone else re-built on the plot and
sold on for £300k? In which case they made a gross profit of £50k
(300-100-150)k.

One thinks that the owner would have in fact simply auctioned the
plot/shell himself, except the mortgage company wouldn't have let him.

Fair enough, if he had not built up any equity in it.

The mortgage company has lien over any property it lends against: Their
concerns are purely and simply to have insured the difference between a
worst case accident and the cost of getting their money back, IYSWM.

Yes.

You, as a property owner, faced with a wholly owned burned out shell
etc, may do what you, like up to and including abandoning it and moving
on. However it's hard to establish what the claim value should be if you
do this. Whereas if it's rebuilt with reasonable quotes presented, they
can agree to pay the rebuild cost.

Agreed. In my scenario the insurers would need to agree in advance what
the insured value was; either an actual value as established by
independent valuers (might be tricky if the house has gone), or by
simply agreeing in advance to pay a fixed sum (the insured value) less
any residual plot value. That is my 'comprehensive car insurance'
analogy. I'm beginning to think the reason this is not used (as far as I
know) is the difficulty of establishing the value after a catastrophe.

In the case of a mortgaged property, you are not free to act: The
mortgage company will more or less insist that you either continue to
pay mortgage on the full value of the loan, or [they] repossess the house.

Or you redeem the mortgage with any insurance pay-off. However, I think
they would normally get in first with the insurers and take that option
without your say so.

The only case in which you might care to insure over the rebuild value,
is if there is a chance that the whole site might become uninhabitable
due to e.g. falling in the sea, or becoming contaminated with
radioactive waste. Most insurance companies won't touch that sort of
policy anyway.

If the re-build costs are less than the value. I take the points made by
others that you can build *a* house for less, but I'm fairly sure you
could not re-instate a very similar house complete with Victorian
features - high ceilings, large rooms, steep roof, etc - AND comply
with modern regs for the current value, in most parts of the country.

Is it the case that the re-build standard you can expect is normally a
modern house of about the same value as your old one, and of course with
the same address?

Note that if the estimates for rebuild exceed the insured for value, you
won't even get the full insured value out of the insurance company: You
can lawfully be adjusted down to the fraction of the insured value
represented by the insured value versus the rebuild cost.
i.e. if your house cost 500k to rebuild, and its insured for 400k, you
may only get 4/5 of 400k. or 320k.

Yes, that is how under-insurance works. They never pay out extra if you
are over-insured of course!

I've come across that gotcha in contents insurance. Adjuster started
saying that 'my furniture was worth far more than insured for, therefore
I am under insured, therefore he would only pay out 50% of the value of
the TV etc stolen, until I made a point that none of the furniture was
bought new, and was at best reclaimable from skips and junkyards at a
couple if grand. That shut him up.

It always pays to negotiate. You're lucky he didn't riposte with an
offer just enough to buy a telly from a junk shop. I always knew that
you should keep evidence that you paid full price for something of value
- it never occurred to me that you need to have evidence that your stuff
is virtually worthless :-)

Do take insurance seriously. IF you e.g. have a flood, and they consider
the house is under insured, you may not get full returns on e.g. flood
damage, even if the sum you claim is far far less than the 'insured value'.

Read the fine print, and any issues get a letter in writing clarifying
their policy that you can wave in their faces if you ever need to. AND
make sure its not in a cardboard box in the attic. Fireproof safe.

These days a digital photo kept on a website archive can be a good
safeguard for documents.

Mind you, the letters to and from the company in the case of the real
example I quoted must have got burnt, because that's what the man
claimed, that he had done X and Y, and it wasn't his fault that the
mortgage company had lost their copies when they got taken over etc etc

Thanks for the interesting post.

Phil
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