Finance: Policies to shrink home insurance

If you are among the many homeowners whose properties have risen in value by many tens of thousands in the past two years - congratulations. By a strange quirk of fate you may also be in line for a even better deal when it comes to insuring your property. Nic Cicutti explains how you could cut your insurance bills - by going up-market.

Is your home worth more than pounds 150,000? Are its contents valued at pounds 50,000 or above? If you live in London and the South-east of England, the chances are you fit in that category. Increasing numbers of people are finding that the past 12 months' market frenzy has almost doubled the value of their homes.

Hard to believe? Sarah Barrett is a perfect example. She bought a three- bedroom terraced house in Islington for pounds 127,500 in mid-1995. In November last year, she briefly considered selling up and had the house valued: "Two local estate agents came round. One valued my property at pounds 245,000. The other said he could get at least pounds 280,000 for it. Even if you think the lower price is right, that's a huge increase."

Recently, after two years of insuring her property and its contents through a policy sold by her lender, she has been asking a few questions: "I've been paying more than pounds 950 a year, which includes contents cover for about pounds 40,000. But two paintings left to me by my father are worth more than pounds 15,000 alone, so I'm not even sure whether I'm under-insured."

Sarah's dilemma is shared by many other homeowners. A study by RK Harrison, a London insurance broker, more than a year ago, suggests that 800,000 British homes are worth more than pounds 200,000 with contents valued at about pounds 50,000. That figure will have grown substantially since then.

Yet a separate report by Hiscox Underwriting, another specialist insurance firm, which has the largest share of the high-net-worth market, estimates that more than 95 per cent of homes with contents worth more than pounds 75,000 either use a standard contents policy or fail to insure their possessions. If so, they may be under-insured. Alternatively, if they try to obtain cover for the maximum value of their possessions, they will probably be paying too much.

Why is this? The main reason is that most insurers offer a standard form of cover to everyone, irrespective of their risk profile or their propensity to claim. By contrast, brokers and insurers in the high-net- worth niche market are happy to cherry-pick. They know that people with expensive possessions are less likely to make fraudulent claims. Security is generally much tighter, and art and antiques appeal less to burglars than televisions and videos, although that may not apply to jewellery.

This means, for instance, that it is possible to differentiate between the level of premiums paid for items such as pictures, books, collections, antiques and furniture, and more general contents, such as electrical equipment, carpets and clothes. While many standard insurers will charge the same for both, Hiscox's 606 High Value Household Policy charges 30p per pounds 100 of cover on the former and up to 90p per pounds 100 on the latter. It is also possible to tailor high net-worth packages to cover second homes, small boats and even horses.

The availability of depreciation cover (to pay for loss of value as well as restoration in the event of damage) is of paramount importance when art work or antiques are involved. Nevertheless, a standard household policy would only pay for the cost of repairs.

Depreciation cover is offered by the established high net worth players - Hiscox Underwriting, Cox Underwriting Services and Wellington Personal Insurances, which are all Lloyd's service companies.

Wellington's Gold Cover, for example, is unusual in having an extension for private motor vehicles (including collector's cars), while Cox's Personal Insurance Portfolio offers free annual travel insurance. Independent's Home by Design provides a free comprehensive appraisal of the home, which includes advice on security and risk management.

A minefield of smaller-print variables in fact makes it difficult to select the most suitable policy and the help of a specialist intermediary is essential in most cases.

Towry Law (Slough branch), Artscope International (Farnborough) and Penrose Forbes (Banbury) are all intermediaries with good reputations.

The popularity of the high-net-worth market has led to the growth of a subsidiary type of cover, aimed at "mid net worth" (MNW) clients. Started in October 1994 when Norwich Union launched its Highline insurance package, these policies generally offer cover on buildings worth pounds 100,00 and contents worth pounds 50,000. Some go far lower. Guardian's Select, for example, caters for buildings worth pounds 50,000 and contents of pounds 35,000.

This is because insurers have discovered that many MNW policyholders are aspirant "high-net worthers", whose attitudes towards security and claims differ little from the next value bracket up.

Chubb Insurance Masterpiece, 0800 111511; Hiscox Underwriting House & Contents, 0171-423 4200; Wellington, 01993 771717; Cox Underwriting, 01608 643344; Norwich Union Highline, 01603 686860; Independent Insurance Home by Design, 01732 86521; Guardian Insurance, 01473 212422; NatWest Insurance Services 0645 100239; RK Harrison 0500 101015; Towry Law 01753 554400.