What does index linking mean in insurance?
Indexation is the figure that is used to increase the amount of insurance cover you have on an annual basis, to help combat the effects of inflation and under insurance.
Most building insurance policies for example will stipulate that the sum insured must be high enough to cover the full rebuild cost of the property. As the insured it will be your responsibility to provide a correct figure. So, you will need to ensure that this figure reflects any changes to rebuild cost caused by inflation or other factors.
However, insurers will often play a role in this by index linking your policy – applying a figure which is used to adjust the sum insured year to year and as a policy renews.
How is index linking currently being impacted?
We took an in depth look at indexation and the impact on insurance back in February of this year. But fast forward to December, and we are still seeing the situation change. With a range of factors impacting costs and the highest level of inflation seen for 40 years.
The building industry has particularly been impacted by Brexit and the global COVID-19 pandemic. Resulting in higher material, labour, and shipping costs.
- Covid 19 caused manufacturing plants to shut down or work to reduced capacity.
- Brexit has led to supply issues for imported products such as timber, steel, brick, and tiles etc.
And we now find ourselves in a position where most insurers have moved away from index linking of say 3 or 4% to Indexation following the Retail Price Index which is currently at 11.70% for Buildings. As such this is resulting in increases to the building’s sums insured.
Insurers are helping customers to keep pace with the Retail Price Index for Buildings by automatically uplifting indexation to expiring Building sums insured (and contents). We are seeing increases ranging from 13% to 19% reflecting increased rebuilding costs.
Work with an insurance broker to combat risk of underinsurance
At Anthony Jones, we are working hard to manage the cost of insurance for our customers in an environment of intense focus on expense for businesses.
There are two key factors at play currently which are impacting costs
- Market rate increases on property insurance are the norm
- Double figure indexation increases on sums insured are being applied automatically at renewal invite
Underinsurance is a real risk that many businesses and individuals face when it comes to building or property insurance. But working with an insurance broker can be of real benefit when arranging your insurance. At Anthony Jones Insurance Brokers we are insurance experts. We understand emerging insurance risks and factors which may impact your policy and required cover. We can work with you to understand the complexities of insurance and help you obtain the type and amount of insurance coverage that you need. Contact us today to see how we can help you.