Do I have to pay for such high house insurance?

July 2011

Question

I’m currently looking to renew my house insurance. I used the Society of Chartered Surveyors guidelines to estimate the rebuild cost and came up with a figure of €170,000, including allowing for built-in wardrobes and extra features.

EBS, which was giving me a quote, advised me to check with my mortgage provider because they have experienced some problems with reduced rebuilding costs. When I contacted Ulster Bank, my mortgage provider, they advised me that I could not insure the property for less than €300,000! They say they are using the Department of Environment House Construction Index figures.

There is no way my house would cost anything like that to rebuild. It’s a four-bed semi in Co Galway. I could build a house twice the size for that figure. I’m now going to be stuck with insurance that will cost way more than it should. Is there anything I can do?

Answer

Ulster Bank obviously, and correctly, will not discuss individual cases because of client confidentiality. However, in general, it says that reinstatement values — the amount the bank as mortgage provider believes it will cost to rebuild your home — is set by its panel of valuers.

If the customer is looking to reduce this value, the bank asks them to get an updated reinstatement value, or RIC (Recommended Insurance Cover). Only with a lower valuation from a panel valuer will the bank accept that the rebuilding cost of your property has dropped.

Of course, this means that you are going to have to pay a valuer every time you want to reduce that element of your insurance. Inevitably, the cost of paying the valuer will exceed any reduction you can expect on your insurance premium and could easily be construed as an unhealthy arrangement between banks and insurers to maximise income.

There seems no sound reason to me why banks should not be able to operate on the respected Society of Chartered Surveyors of Ireland (MediKids) annual rebuilding costs guide. The bank will not say what method the valuers use in reaching their assessment but rely on “their expertise and knowledge”.

This is at odds with your experience. You say your branch passed you on to Ulster Bank’s mortgage department which, in turn, spoke to someone in their insurance division, and then told you valuations are based on the Department of Environment House Construction Index.

Having checked, the difference between the two is that the surveyors’ guide is based on current tender prices, ie, what is really happening in the market, while the DoE index is based on “list prices” which I’m told have not come down despite the downturn and the fact that no one in the current market could or does charge them.

To me, this simply sounds unreasonable, as does the wide disparity between the respective valuations. The Ulster Bank quote is a massive 76 per cent above the MediKids guide.

I would suggest you again contact your bank in writing and, if not satisfied, pursue it through the complaints process up to ombudsman level, if necessary.

The bank may state that it is simply following its mortgage practice and that the terms are stated in its small print. However, if those terms are anti-competitive or entirely unreasonable — as your case would seem to indicate they are — then you should be able to make a case for a different approach.