It has been a long time since I worked in the insurance industry and was constantly surprised to see how many insured parties were proposing that the ‘market price’ as the amount to be insured. It needs to be clarified that the market price differs from the insured risk.
Market price is the price achieved when the property is sold on the open market. It is constantly open to speculation and is driven by many factors. The DAFT House Price Report Q1 observes ‘measuring prices’ is ‘an art rather than a science.’ (www.daft.ie/report/Daft-House-Price-Report-Q1-2012.pdf PDF file). This survey states house prices should be calculated ‘between 12 and 15 times the annual rent that a property can generate.’ Shockingly, the same report observes that this range is ‘often ignored.’ Market value can go down as well as up and is prone to overinflation as we have all found out for the past few years. Not everyone will agree what one house is worth.
Insurable risk is cost of rebuilding your house if it is burnt to the ground.
I bring these points up as the government are introducing the household tax based on the market price. I understand why the government are calculating the household tax on market price taking into account the mean evaluation of an area. This calculation is unfair and is open to speculation from all parties. I am not suggesting there should not be a household tax, but suggesting there is a better, less argumentative alternative. When the household tax comes into effect insurable risk provides a more realistic valuation.