If you have to make a claim on your insurance policy be aware that you may be restricted in terms of where you can buy replacements.
When you make a claim, especially for something like contents insurance, your insurer may settle your claim in one of the following ways:
- A cash payment equivalent to the value of the item(s).
- A replacement – which they will arrange (and deliver) for you.
- A voucher or gift card charged up to a certain value to be used at a specified supplier.
- A cash payment equivalent to the cost that the insurer would have to pay their preferred supplier for a replacement.
This cash payment could be more than 30% less than the retail price of the item. That’s because insurers often negotiate a bulk buy discount with their preferred suppliers.
Do I have to use a voucher?
Not necessarily. You’ll normally be offered cash instead, it’s just that you may not get as much as you expect. It would depend on whether you could buy the same or similar item at one of their preferred suppliers and on the individual insurer.
Some insurers will let you – as the policyholder – decide whether you’d rather have cash or vouchers, and will give you the full value in cash if you’d rather buy from a retailer of your choice. Others will offer you vouchers and will deduct the discount if you’d rather buy the item from a retailer of your choice.
Whatever the insurer’s approach, it cannot give you the lower cash amount (after deducting the discount it gets from its preferred supplier) if you’re not able to buy something the same or very similar to what’s been stolen/damaged.
However, there are some grey areas – you may not be entitled to a particular brand of laptop for example, if there’s something else similar that has the same specification. But if there’s a difference in brand quality, you’d be entitled to argue that you’re not being offered a ‘like for like’ replacement.
How big might the discount be?
Insurers negotiate discounts with their preferred retailers and the size of the discount – and the number and range of suppliers they use – will depend on how much business the insurer can send the way of the retailer and on the retailer itself. The problem is that this information isn’t in the small print of insurance policies and even if you were to ring up you’d be unlikely to be told.
- If you’re going through a broker: they should know how different companies handle claims and how flexible they are.
- If you’re buying the policy direct from an insurers, it’s worth going on their website, downloading the policy wording (it’s sometimes called the ‘policy document – don’t just click on the policy summary as it’s not the same) and doing a search on the word ‘supplier’. This will normally take you to a section entitled something like ‘how we handle claims’ and it will give you an idea of their approach.
Who to complain to
If your insurer won’t settle your claim in the way you think it should you can complain to the free financial complaints service, the Financial Ombudsman Service. Every year it receives complaints from people who are unhappy because their insurer wants them to use a preferred supplier or won’t give them the full cash value of their goods.
Cases are decided individually but, in general terms, if you simply prefer the cash because you’d like to buy the item at a later date or don’t want to replace it, the insurer is entitled to give you cash minus the discount it would have been given by its preferred supplier.
If you want to buy the item from your own choice of retailer, it would come down to whether or not you would be disadvantaged by being made to buy something from a preferred supplier.
Using the insurer’s preferred repair firm
There is one situation where it’s normally a better idea to use the insurer’s preferred supplier and that’s if you’re having any repair work carried out. Many insurers use companies from their own panel but also give policyholders the option of getting quotes from local firms.
If you use a firm contracted by the insurer, it’s the insurer’s responsibility to make sure the repair is carried out correctly. If you later realise the job hasn’t been done properly you can go back to the insurer and get them to sort it out.
If you use a firm you’ve chosen you don’t generally have the same rights and you’d have to take it up with the builder/plumber yourself if there’s a problem later down the line.