Don't allow subsidence to give you that sinking feeling

Claims are rocketing. Christine Stopp gives the low-down on pitfalls to avoid

In 1995 the insurance industry paid out pounds 326m in subsidence claims. This represented almost 45,000 claims averaging over pounds 7,000 each. The Chartered Institute of Loss Adjusters recently predicted a 50 per cent increase in claims on top of last year's threefold growth. "Even a wet summer cannot stop the momentum which is already in place," it said.

Other sectors of the industry are anxious not to create panic among policyholders. This is part of the message in a leaflet on subsidence from the Royal Institute of Chartered Surveyors whose information service will give members of the public the names of three surveyors in their area who specialise in the problem.

Insurers are also trying to calm nerves. Direct Line has produced a free booklet, Cracking the problem of subsidence, (01473 824447) which advises on ways of planting trees and shrubs to minimise the risk.

The insurance companies are also reassuring: they say there are no "at- risk" postcode areas they will not cover, that they will not exclude subsidence from cover after a claim has been paid and that if you want to sell a house with a history of subsidence, the current insurer will usually transfer cover to the new owner.

But civil engineer Rob Hooker of the Subsidence Claims Advisory Bureau, sees a different picture. In his view, insurers should "educate policyholders on what they will and will not pay for". Subsidence is a grey area: the word is not properly defined in policies and there are exclusions that may be beyond the policyholder's control.

Mr Hooker cites a large insurance company that is refusing to pay a subsidence claim on an old, extended property because the foundations under the extension are relatively shallow. The claim failed on the grounds of "inadequate foundations" - something the houseowner could hardly have known about.

Other grounds for exclusion include "compaction of infill", where the hardcore under your floor moves, taking the floor with it. If the foundations remain unaffected, this problem will not be covered as subsidence. Defects in workmanship or materials used is another exclusion which the policyholder may not be in a position to judge. A form of concrete often used in the South-west reacts with cement and can disintegrate, reducing foundations to dust. Insurance companies may put this problem down to wear and tear, says Mr Hooker.

Other problem areas are "settlement of newly made up ground" - you are unlikely to know what the ground is like under your foundations - and accidental damage. This category would cover you if a neighbour caused your property to subside because of building work. But accidental damage is not included automatically on all policies. Full cover of this sort may only be available as an extra.

Mr Hooker has seen claims turned down for all these reasons. His own company writes 40-50 policies a month on properties which have had subsidence problems. He offers specialist subsidence surveys at pounds 125, with a refund if he cannot insure you. He reckons that cover is possible for seven out of 10 applicants. He urges people not to worry about the odd crack, even if subsidence is the cause; expensive underpinning will rarely be needed.

Peter Longstaff of Prospero Direct says there are high subsidence risk areas many insurers will not quote for. Prospero uses scientific data from the British Geological Survey to give a more accurate picture, which means they will quote for some areas ruled out by other insurers. Higher risks will be reflected in a higher policy excess. The excess on standard subsidence cover is commonly pounds 1,000. In a high-risk area it might be pounds 2,500.

Having made a subsidence claim, the policyholder may come up against the second large problem with house buildings cover: under-insurance. You need to insure your house for its rebuilding cost - not the same as its market value - which may well be higher. If you are seriously under- insured you claim may not be paid in full (policies vary in their approach to this, so check policy details).

How do you work out your rebuilding cost? When you buy a house, there will be an estimate of rebuilding cost in the building society surveyor's report. You should make sure this is kept up to date year on year. Not all policies build in an automatic increase, and even if they do, the sum assured may slip behind building cost inflation.

Ultimately the best way to find out would be to order an insurance valuation survey. However, the householder can get a very good idea from the Association of British Insurers' (ABI) fact sheet, Building Insurance for Homeowners 1996. It contains a table of figures from the Building Cost Information Service. The figures are taken from a detailed BIS survey aimed at professionals but available to the public for pounds 29.50.

Here are some steps you should take towards trouble free buildings insurance.

r Read your policy carefully. Make sure you understand the cover and exclusions.

r Consider additional cover options that may give fuller protection.

r Maintain your property: keep trees pruned, don't plant trees near the house and check drains periodically for leaks. Don't cut down mature trees.

r If you are in a high-risk area do not change your policy. If a long- term crack suddenly gets worse, your new insurer will pass the buck to its predecessor, making your claim much more complicated.

r If you are selling or buying a property where remedial work has been done, ask the existing insurer to transfer the cover to the new owner.

r Make sure your sum assured is adequate to cover rebuilding costs.

r Check whether your sum assured is increased automatically. Even if it is, monitor it periodically.

r If in doubt, get a professional valuation.

Contacts: ABI: 0171 600 3333; BCIS: 0181 546 7554; Direct Line: 01473 824447; Prospero Direct: 01542 842040; RICS: 0171 222 7000; Subsidence Claims Advisory Bureau: 01424 733727.