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Oversimplifying contents cover creates challenges for home insurers

Knowing how much contents cover is appropriate in a home insurance policy is a challenging endeavour for both insurers and their customers, often filled with a substantial amount of guesswork in the application process and a sometimes-contentious claims process.

The difficulties around selecting the right amount of cover stem from the fact the onus usually falls upon the customer to decide how much cover they need, and that the guidance provided by insurers can be too simplistic.

Getting accurate and reliable contents sum insured estimates is highly beneficial for home insurers, substantially reducing the risk of over or underinsurance.

In many cases, customers simply do not know how much cover they need. They may not know the cumulative value of the items they would want protected by their policy and may underestimate or overestimate this figure. Equally, the limits offered by a selection of policies and what they mean in the event of a claim may not be communicated clearly to the customer.

Some insurers and price comparison websites provide guidance to customers around how much cover is appropriate by asking some relatively straightforward questions. For example, they may ask what type of property the customer lives in (detached, semi-detached, terraced house or flat) or how many bedrooms they have.

The problem with this approach is the amount of the variables involved which can influence the value of a customer’s contents sum insured. The guidance provided to the customer often does not take into consideration the property’s size, its value, where it’s located, or provide any insight into what is typical for comparable dwellings. A three-bed home in an affluent part of London is likely to have different requirements than a comparable property in a village in the North of England, for example.

Getting accurate and reliable contents sum insured estimates is highly beneficial for home insurers, substantially reducing the risk of over or underinsurance, both of which can be a contentious matter between insurers and their customers.

New FCA rules affecting home insurers

The importance of offering the right amount of contents cover and communicating this clearly with customers has been brought to the fore by newly proposed rules and guidance set by the Financial Conduct Authority, which are currently under consultation and scheduled to go into effect by 31 July 2022.

An intended outcome of the FCA’s proposed Consumer Duty is to bring a higher level of consumer protection in retail financial markets, which would apply to insurance products and services.

Specifically, a large focus of the Consumer Duty is to help customers make properly informed decisions around financial products and services, ensure those products are well-communicated, represent “fair value”, and are appropriate for the specific needs of customers.

In the context of contents insurance, insurers acting in accordance with the proposed FCA guidelines could help to reduce the risk of over or underinsurance and any potential complaints to the Financial Ombudsman Service by ensuring customers know exactly how much cover is appropriate for them.

How to gain more clarity on a property’s true contents value

Many customers don’t have the time or ability to itemise the contents of their home, which is why insurers have relied on asking general questions to estimate potential contents cover. Verisk offers an alternative to the traditional methods of underwriting contents insurance with an innovative analytics model that take much more relevant and predictive information into account in order to generate more precise estimates.

With full coverage of all UK addresses, Contents Insight is an address-level model that predicts the appropriate level of cover for the contents of a residential property. Built using state-of-the-art machine learning algorithms, the model calculates estimates based on factors such as the size of a property, type of dwelling, number of rooms, and demographic characteristics, and is validated by claims data.

By simply entering an address, Contents Insight provide insurers with a reasonable range of upper and lower levels of cover estimates to insure the contents of that property. Where there is a lack of data for a particular address, the tool makes assumptions based on similar properties and characteristics.

The challenges around contents cover faced by home insurance providers along with a showcase of Contents Insight were presented at a recent Verisk webinar, ‘How Much Contents Cover Do Your Customers Really Need?’, which can be accessed here.

Alex Croydon

Alex Croydon is managing director, general insurance UK, at Verisk. She can be contacted at

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