IFSO Case Study

The sequence of disastrous events began innocently enough when Mr H* had a craving for steak and chips. For reasons unknown, he decided to cook his steak in a toaster. Having inserted the steak into his toaster and started the toasting process, he had a further strong desire for hot chips. Leaving the toaster unattended, he left the house for his local fish and chip shop.

The ensuing fire left the house severely damaged.

Fortunately, the couple’s home was insured. However, they were in for further stress when they made their claim. Despite their insurer accepting their claim and offering $418,000 - the maximum amount that could be paid under the couple’s policy, the couple felt the sum was not sufficient to replace the house. Contacting the Insurance & Financial Services Ombudsman (IFSO), they argued that the insurer should pay them an additional $200,000, a further sum that they claimed was required to rebuild the house.

Additionally, they complained that the insurer was not clear there had been a previous change in policy cover, from replacement cost cover to total sum insured cover.

Karen Stevens, IFSO, said the fire was a tragedy for the couple, but not understanding the annual insurance renewal process or the cost to rebuild their home, added further avoidable suffering.

“Every year, everyone with insurance policies receives a renewal offer that can amend or change the policy that they originally signed.

“I can’t stress highly enough the need to read each renewal letter carefully. Most insurers now offer total sum insurance, meaning your house is insured for a set price. If you don’t do your homework and insure your house for too low a sum insured, you could find yourself unable to rebuild your home. The sum insured should be what it would cost to rebuild, not what it’s worth on the market.”

“Your acceptance of the new terms is often the next payment of your premium.”

Stevens says that for those who are unsure of their home’s value, there are online calculators to assist, but they are estimated building costs only.

“Online calculators aren’t a substitute for an insurance valuation provided by a registered valuer or home valuation provided by a building expert. We recommend you get the experts in if you’re unsure.”

IFSO did not uphold the couple’s complaint, saying that the insurer had paid the policy’s maximum entitlement and that the couple had been adequately informed of the change to their policy.

Stevens believes that, in this case, the original fire event was preventable, and one that must have wreaked havoc with the couple’s lives.

“Cooking steak in a toaster is literally a recipe for disaster. To have then left the house and toaster unattended for the sake of hot chips must be a constant source of regret. Never, never leave cooking unattended, even if you think you’ll just be a minute – and please, use your appliances for the purpose for which they designed. Toasters are for toast.”

* name changed



June 2022

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