FBD Insurance is reminding farmers that one of the most important things to consider when taking out an insurance policy on property is how much cover is required.

If the sum insured on buildings and contents are not adequately insured, the farmer could end up paying a lot more than anticipated.

What is underinsurance?

Underinsurance occurs where the sums insured on property are less than the value it will cost to reinstate or replace it. If adequate cover is not in place, an insurer may only pay part of the claim.

FBD Insurance recommends that all buildings should be insured for their full rebuilding value and urges property owners to review their sums insured.

FBD’s Agri Underwriting manager, Stewart Gavin, stated that “over the last two years we [FBD] have noticed a step change in rebuilding costs”.

“We would ask all customers to reflect on these increases to ensure they have adequate property sums insured on their insurance policies.”

Where a property is underinsured, the value of any claim is reduced by whatever proportion is represented by the level of underinsurance. If you are underinsured, the Condition of Average may apply in the event of a loss.

The Condition of Average Clause means that you need to insure the full rebuild cost of the buildings and contents; claims settlements may be reduced if the sums insured, at the time of any loss or damage, are less than the full rebuild cost.

If a sum insured is less than the full rebuild cost of the buildings or replacement value of the contents at the time loss or damage occurs, then the insured person shall be responsible for a part of their loss.

Example of underinsurance

Let’s say a fire damages a farm outbuilding to the cost of €100,000. The cost to fully rebuild or replace the building is €400,000. But, the property owner has taken out insurance cover for €200,000, effectively underinsuring by €200,000 (or 50%).

The claim value after the fire is €100,000 however, as the building in this example is underinsured, the insurer would only cover 50% of any claim made, no matter the size of that claim. In this case, the farmer will only receive 50% of the claim amount.

This would mean that any costs over €50,000 are not funded and would leave the farmer needing to pay the remaining costs of the rebuild. Insuring property for incorrect values or setting cover limits too low, is likely to result in underinsurance. 

It is important to note that insuring your contents for the correct amount is important too. The contents sum insured should represent their current replacement value, as for new contents.

Factors which affect rebuilding cost and can cause underinsurance

It can be very difficult to accurately calculate the rebuilding costs of a property as a variety of factors need to be considered.

Factors which may affect underinsurance:

  • Insurance cover has been based on the market value of the building, when it should be based on what it would cost to rebuild your property;
  • Not factoring in the extra costs of rebuilding;
  • Not factoring in the extra cost of garages and domestic outbuildings;
  • Not reviewing sums insured at each renewal;
  • The property has recently been altered, renovated or extended;
  • Underestimating the value of the contents in the building.

The advice from FBD Insurance is to take action now

Don’t wait until you need to make a claim; address any potential issues today by contacting your insurer to make sure that you are not underinsured. Rebuilding costs and replacement value of contents should be reviewed annually.

If you have any questions about the cover on your farm buildings, talk to the team at your local FBD branch today, or to arrange a call back or a farm visit with an FBD Insurance team member, click here.

FBD Insurance Group Ltd. trading as FBD Insurance, is regulated by the Central Bank of Ireland. Underwritten by FBD Insurance plc.