COMMENT It’s fair to say that 2021 proved quite a disruptive year for the UK insurance industry. We saw insurers take drastic steps to restabilise their exposures, including ceasing to provide insurance for certain business types, reducing cover in specific risk areas and increasing premiums in others.
Unfortunately, even though premiums have increased over the past 12 months, it’s looking likely that insurers will still make a loss in most cases, following the claims reported in 2021. We are hopeful that premiums may not continue to increase at the same rate, although this does remain the situation at present as RICS Index Linking figures continue to rise. This raises the question: if premium increases aren’t preventing insurer losses, what other remedies might insurers focus on over the next 12 months to staunch the flow of cash, and what should we be looking out for in 2022?
Excesses have a significant role to play
Faced with claims cost rises across the board, many insurers have chosen to tackle the situation by applying a global blanket increase to premiums year-on-year. This tactic, however, does not necessarily increase the profitability of those insurers’ books of business. Nor does it automatically lower the impact of the frequency and severity of losses the property insurance market is currently enduring. Nevertheless, by increasing the policy excesses that apply to each policy, insurers can control how their book of business is likely to perform with a degree of certainty. For this reason, property owners should pay greater attention to the terms that their insurer offers them over the next 12 months as policy excesses will, doubtless, continue to increase, even for claims-free policies.
As a consequence, multiple quotation options may be on the table at renewal. That said, the highest premium “option” could provide the most competitive overall package because the claims policy excesses remain the most competitive in these instances. So, even if one claim ensues during the next 12-month period, it is still the best value for money for property owners. Furthermore, if the quotation terms do not meet the property owner’s expectations, they can always look to their insurers to offer varying excess options if they are available.
Flood cover
Environmental factors, urbanisation and the lack of overall investment in drainage and flood defences are all contributing to a picture of more frequent and severe flood events, making the provision of flood cover increasingly challenging for insurers. Furthermore, considering the general rise expected across the board for all policy excesses, the specific policy excess applied for flood claims may become almost uneconomical to insure in some instances.
During the past 12 months alone, there have been several significant flood losses in London and rural areas. These have severely impacted insurers’ profitability over the period. Looking ahead, insurers will seek to reduce their exposure to this peril by excluding the cover altogether or increasing the policy excess by a considerable amount. Thankfully, some other schemes and facilities exist to plug such gaps in cover and excesses for flooding. Nevertheless, these incur a cost. So, either by investing in more effective risk management or by paying for additional cover(s) to plug gaps left by traditional policies, the property owner must be aware of and pay attention to this element of cover moving forward.
Proactive claims management
Property owners’ policies have many differentiators that distinguish them from standard commercial products. One such differentiator is in the area of claims. It works on the basis that a claimant may not necessarily be (and in many cases is not) the policyholder and may not even contribute to the cost of insurance, as is the case for tenants rather than leaseholders. For this reason, property owners must pay close attention to any claims submitted to ensure that the associated costs remain as low as possible. In doing so it will reduce any detrimental future impact to the policy coverage, premiums and excess applied.
It can be hard to reduce the cost of a claim because you cannot undo the damage sustained nor lower the repair costs incurred. As such, any damage will always need to be remedied as required. However, even though insurers may appoint loss adjusters (who should act as independent parties) to remediate and rectify any losses as expeditiously as possible, property owners must try and control the claims cycle as much as possible to stop the claims costs from spiralling.
This type of control is crucial where claims lead to tenants requiring alternative accommodation, which substantially impacts the cost of a claim. Generally, where there is an increased excess in place already, the best advice for the property owner is to act as if there was no cover in force whatsoever. After all, an insured with zero cover will, in all likelihood, act swiftly to mitigate and minimise costs or losses to themselves. Such action will ensure that any necessary rectification works are started in good time to avoid the costly necessity of finding alternative accommodation.
Of course, this mitigatory approach is not always feasible. If it is required, the use of alternative accommodation should be as short-term as possible to keep costs down. There may also be a willingness on the part of the property owner to leave loss adjusters and insurers to control the claims process. Moreover, while most insurers seek to protect the insured’s interests and costs, the property owner should not automatically assume that this is the case. Indeed, if there is any doubt, the property owner can always exercise their right to appoint an independent loss adjuster to ensure their interests are adequately protected.
James King is property strategic director at Clear Group
