Homeowners warned about house insurance issue that could cost them | Personal Finance | Finance

Consumer watchdog Which? is urging homeowners to think carefully before accepting cash settlements from their home insurance companies, warning that they could end up significantly out of pocket. When filing a home insurance claim, insurers usually offer a number of options to restore your property, such as arranging the repairs themselves or providing a cash settlement for you to organise the work independently.

However, Which? has warned that cash payouts can occasionally result in households facing unexpected costs. For example, if your home sustains damage requiring extensive repairs, the true cost might not become apparent until the building work commences, according to the Mirror.

Which? conducted a survey of 2,804 people who had made home insurance claims within the past two years. Of those whose claims were fully or partially approved, four in ten (41%) were offered direct repair or replacement, roughly the same proportion received cash settlements (38%), while one in five (19%) were given a combination of both options.

Sarah Richards from North Devon told Which? that the cash settlement her insurer provided for bathroom repair work was “woefully low”, forcing her to dip into her personal savings. She claims that during the loss adjusters’ visit, she was persuaded to sign documentation confirming their attendance, without realising she was also accepting a cash settlement and closing her claim.

In July, the FCA issued a warning in its claims handling review that some firms might be offering cash settlements primarily to manage their own costs, without considering customers’ best interests. The latest alert from Which? comes after the consumer watchdog launched a super-complaint to the financial regulator about how insurance companies treat their millions of customers.

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.”