Urgent warning for anyone with home insurance – and what you need to do before making a claim

HOMEOWNERS are being told to think twice before accepting certain types of home insurance payouts, as they could end up out of pocket.

Consumer watchdog Which? has raised concerns that some insurers may be offering cash payouts to cut their own costs, leaving customers short-changed.

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When resolving a claim, insurers may offer to repair or replace losses itself, a cash settlement, or a combination of the two.

A survey by Which? revealed that 38% of home insurance claimants were offered cash settlements, while 41% had their claims resolved through direct repairs or replacements, and 19% were offered a mix of the two.

While cash offers can seem like a quick fix, they may not cover the full cost of damage, particularly for extensive repairs.

For example, if a house has been damaged and needs extensive repairs, the full restoration costs may only become apparent when work is under way.

Some people may end up partially relying on their own funds to put damage right.

Sarah Richards from North Devon learned this the hard way.

She told Which? that after her home suffered water damage, she accepted a cash settlement that turned out to be “woefully low” and had to dip into her savings to cover the costs.

“It was a terrible experience,” she said, adding she was pressured into signing paperwork without realising it would close her case.

The consumer group raised concerns that rapidly rising costs for many trades could mean homeowners underestimate the full price of repair work.

It is also concerned about the potential for cash settlements to reflect discounted rates from an insurer’s suppliers and contractors that would not be available to customers.

Earlier this week, Which? launched a super-complaint about the home and travel insurance markets.

The super-complaint, being made to the Financial Conduct Authority, is about the markets as a whole, not specific firms.

Over the past year, Which?’s “end the insurance rip-off” campaigning work has produced research reports which the consumer group said exposes poor customer experiences – including consumer confusion over what is covered by a policy, and “frustrating and substandard treatment” when people claim.

Sam Richardson, deputy editor of Which? Money, said: “When you’re vulnerable, perhaps in the wake of a distressing event like a burglary or when dealing with the fallout from a fire or flood, it can be easy to accept the first offer your insurer makes – but it’s important to weigh if this will be in your longer term interests.”

“This week, Which? has taken the extraordinary step of using its statutory powers to launch a super-complaint to the Financial Conduct Authority (FCA) over its concerns about the home and travel insurance markets.

“It’s time for the FCA to tackle poor behaviour in these markets once and for all, taking enforcement action where necessary to force action and act as a deterrent.

“This super-complaint should mark a turning point that leads to fundamental changes in how insurance companies treat their customers.”

Deltapoll carried out research among home insurance customers for Which? in June and July.

A spokesperson for the Association of British Insurers said: “Insurers want to support their customers – especially those in vulnerable circumstances – as best they can.

“A cash settlement may be offered to provide a customer with flexibility and control over repairs or replacements, always in consultation with the customer and with their consent.

“We’re already working with the regulator regarding its concerns over cash settlements to identify improvements that can be made.”