Considering the Impact of Index Linking on Premiums

19 June 2023

Index linking is a key reason that many insurance policies are costing more when a customer comes to renew them. The threat of being underinsured is higher as we see inflationary pressures across the market. By ensuring that your sums insured are index linked – so keeping pace with inflation and other outside factors which affect prices – your sums insured remain adequate and avoid any penalties for underinsurance in the event of a claim or loss.

Seen particularly on buildings insurance, the percentage of index linking applied is usually taken from the Royal Chartered Institute of Surveyors (RICS), to cover the rebuild sum of the property. Unlike simply taking inflation as a value, which would likely come in lower, index linking also considers the costs of raw materials, professional fees, labour and any other elements that might come into play.

There are many factors that are contributing to the significant rise in costs at the moment, which are leading to this rise in index linking on insurance premiums. The pandemic, Brexit and other geopolitical troubles are all contributing to a rise in supply chain issues for many materials, with changes in building regulations also having an effect. The value of many items covered within both buildings and contents insurance policies has risen, therefore the index-linking increases have to rise in turn.

Avoiding underinsurance is vital for customers who want to ensure they are covered. Index linking is a key way to combat this, to prevent the policyholder finding that, should the worst happen, they are responsible for a percentage of the total lost as a result of their asset not being insured to the full value it should be.

We’re here to help

Known nationally as a specialist insurance broker to the property industry, we offer a wide selection of services to real estate companies, property owners, landlords, letting agents and property developers. Our advice, guidance and solutions are always up to date with the environmental situation and we ensure that our customers are covered to their full requirement, with index linking often playing a part in this.

As seen in the November/December 2023 edition (page 41) of the Herefordshire & Worcestershire Chamber of Commerce’s Business Direction Magazine.