Concerns raised over ‘neglected risk’ of HNW property overinsurance

Concerns have been raised over high net worth (HNW) property insurance, with many premium homes being insured for more than necessary, according to new research.

Analysis from RebuildCostAssessment.com found that although 70 per cent of UK properties were insured for less than they should be, overinsurance was drawing increased attention as HNW homes were being insured for more than their true rebuild cost.

Many HNW property owners were paying more than they should for their insurance, the company warned, while brokers were facing potential challenges in verifying ‘fair value' under Consumer Duty rules.

“A validation that’s too high may feel safer than one that’s too low, but both ultimately disadvantage the property owner,” said RebuildCostAssessment.com senior surveyor, Matthew Ward.

“Overinsurance increases premiums unnecessarily, complicates fair-value compliance, and can undermine long-term trust between client and broker.”

This overinsurance can occur when market value or broad construction cost estimates are used to set the amount insured, rather than the actual rebuild cost.

The firm noted that HNW homes can be complex to assess and assumptions can inflate the sums insured.

The Financial Conduct Authority’s fair-value rules mean this issue can be a serious concern for brokers and insurers, who need to provide evidence that customers have received proportionate cover for the price paid.

Inflated sums insured could bring questions during audits and potentially lead to remediation.

It therefore argued that Accurate Reinstatement Cost Assessments (RCA) were essential for HNW clients, providing more accurate costings and a transparent audit trail.

“High value doesn’t mean high guesswork,” Ward stated. “Today’s data tools and cost indices allow precise, justifiable calculations, even for unique properties.

“Ultimately, the most effective validation isn’t the highest, it’s the most accurate.”

---