What is Indexation and how does it impact your insurance?


There are several factors that now make indexation more important than ever. One factor is the significant rise in demand for building materials, and disruption to the global supply chain caused by the pandemic and national lockdowns. Certain elements of Brexit and local shortages of suitable labour are also affecting rebuilding and claims costs.

How does index linking work?

At each renewal of a policy, Insurers adjust the property sum insured, either by applying a flat rate of increase, or having tracked indices of property value. These are usually calculated from data provided by Royal institution of Chartered Surveyors (RICS), the Association of British Insurers (ABI) and the Office for National Statistics. In recent years, these indices have grown at a relatively low rate, but in 2021, the rate of growth has been more significant and sustained. This is now seeing an average of a 10% increase on insurance for property and businesses. The pricing impact of the increased valuations may in part be offset within Insurer pricing algorithms, however most policy holders will be seeing the impact with price increases.

Despite the impact to pricing, this change will benefit policy holders by ensuring they are adequately insured. Under-insurance can significantly affect a claim settlement. Reviewing your sums insured has never been so important with inflation so high. The cost of increasing cover usually is relatively small in comparison to the cover provided.

Speak to your Insurance broker to discuss your current coverage and the options available.

This article is adapted from an original post by NIG which can be found here.