ONE in six homes is underinsured, leaving homeowners at financial risk if they have to make a claim on their policy.
The central bank has now written to all insurance companies, warning them that their customers are being exposed to inadequate insurance coverage.
It comes after surveyors said earlier this month that reconstruction costs have risen by about a fifth over the past year and a half on the back of construction inflation.
Central bank research has revealed that so-called underinsurance in the home insurance market has risen from 6.5 percent in 2017 to 16.5 percent in 2021.
This means that around one in six households is not adequately protected.
After an investigation, central bank regulators found that not all insurers adequately identified the most important risks for consumers.
The companies were asked to take further measures.
Companies must communicate with all home insurance customers, explaining the consequences of under-insurance, the reasons why it is currently an increased risk and how policyholders can better assess an appropriate sum insured value, the central bank said.
The review was conducted because consumers are currently facing increasing remodeling costs, which is impacting the level of insurance coverage a consumer should have for their property.
This can leave consumers at risk of not being fully covered for their losses when making a home insurance claim.
The review found that for those whose claim was reduced due to underinsurance, the average claim payment reduction in 2021 was about 19 percent.
This means that these customers would have incurred significant costs to fully settle the cost of their claim.
Insurers have now been told to write to all home insurance policyholders explaining the underinsurance.
They must also explain the consequences of under-insurance, why this is currently an increased risk and how policyholders can better assess the appropriate insurance value.
The central bank’s consumer protection director, Colm Kincaid, said: “We expect all companies to be proactive in identifying emerging risks for consumers and to support their customers in mitigating those risks.”
He encouraged consumers to check that they had adequate home insurance coverage when renewing or changing their policy.
When reviewing home insurance coverage, consumers should not only focus on the premium, but also on the amount of home and household insurance currently in place to ensure it remains reasonable.
Earlier this month, the Society of Chartered Surveyors Ireland (SCSI) revealed that the cost of a standard three bedroom semi-detached house has risen by as much as €57,000 over the last 17 months.
It is now more important than ever to review the rebuilding portion of home insurance coverage, the company said.
National reconstruction costs have risen by an average of 21 percent over the past year and a half due to construction inflation.
The SCSI has updated its annual House Rebuilding Guide, which is used by homeowners to calculate the cost of home insurance purposes.
In the latest edition, the increase in reconstruction costs ranges from 14 per cent in Dublin to 26 per cent in the North West.