The market is hardening and property owners must adjust to get the best deal this year.
2021 looks set to be a tough year on many fronts and insurance is no different, although it has its own unique challenges. But forewarned is forearmed, as they say, and there is much that property owners can do to put themselves in the best position to get the cover they need and avoid the risk of accidentally invalidating claims by failing to notify insurers of material changes affecting policies.
Competitive cover could be harder to find
The hardening of the insurance market is set to be a major issue for insureds this year. As demand outstrips supply and the marketplace becomes less competitive (for a whole host of reasons), premiums are inevitably increasing, cover is becoming more restrictive and excesses are on the rise. Added to which, underwriters have less capacity to write large-scale risks and less flexibility or appetite to accommodate specific requests outside of their core strategy. The upshot is that, at renewal, asset owners may find it harder to place insurance on the same terms, or in some extremely high-risk cases they may struggle to get cover at all.
Insurers are also being more selective about the new business they will take on, making it harder to shop around for a good deal. This trend is market-specific, rather than coming as a response to problems caused by the Covid-19 pandemic, and the outlook is unlikely to improve any time soon.
Risk management matters more than ever
As insurers become more risk-averse and look more carefully at the policies they are writing, it follows that properties that are actively risk-managed will secure more favourable terms. Property owners that make regular inspections, including health and safety and fire risk assessments, or who make physical improvements to the property – for instance by fitting alarms, CCTV or smoke vents, or by employing security guards – will get a better deal. And don’t wait to be asked: taking the initiative to tell insurers what risk management steps are being taken means that cover (and premiums) can be adjusted immediately. Even at renewal, insurers’ standard questions may not cover all the measures put in place, so the more information that can be offered up pre-emptively the better.
On a slightly different, but related, note, nowhere is mitigating risk more critical than when it comes to cladding. If an EWS1 (external fire wall system) form finds that the property is not fire-safe due to combustible infill materials, insurers need to know, and they will require remedial works to progress rapidly in order to provide cover at renewal. In the meantime, prepare for increased premiums, changed terms and/or reduced cover.
Don’t forget about vacant properties
With far more properties than usual currently vacant (or unoccupied by tenants), property owners may, paradoxically, need to be even more proactive than normal about their insurance. They will need to inform insurers if property is vacant or temporarily unoccupied and give as much detail as possible on how long for, when tenants are returning or not, and what is happening with the space. These are important material facts that need to be notified: insurers cannot make any assumptions as every situation will be different. Equally, property owners should not assume that cover will remain the same, plus insurers may demand more frequent inspections or specific checks.
Watch the timeframes on major works
Fixing cladding issues is one reason why we are likely to see an upswing in the amount of major works being carried out on buildings this year. Anyone undertaking major works should give their insurer plenty of notice. Current contracts may not include new works, meaning that specific cover will need to be obtained. What’s more, policies will only cover a specific time period and so, if unexpected delays occur – for example due to Covid-19 or Brexit-related problems getting workers or supplies on site – insurers will need to be told. Depending on the extent of the delay, this may incur cost, so expect to need some flex in the budget.
Take the time to understand the true cost
In this challenging environment, it is important to evaluate the true cost of insurance. Two policies may appear to offer the same cover and if one is cheaper than the other the temptation is often just to choose that one. However, that may turn out to be a false economy if the chosen policy requires you to carry out expensive checks, for example on flat roofs or more regular inspections of vacant properties, or even to get trees pruned regularly, while the other one doesn’t. Moreover, failure to meet these requirements may result in a claim being invalidated, which could cost far more than the original price differential. That’s not to say that expensive cover is necessarily better: my point is that it pays to look beyond the quoted premium.
It’s good to talk
It’s not all doom and gloom. Insurers may be prepared to be lenient about their terms and requirements, for example, if Covid makes it difficult to meet them. The key is to be prepared in advance for the issues that may arise so that there are no shocks at renewal and to be upfront and open in communicating with brokers and insurers when circumstances change. Active dialogue is the best way to get a good deal and ensure you are actually covered for the risks you want to insure. Business-as-usual might have been suspended for many when it comes to property but now is not the time to be passive. In 2021, proactivity is the way forward.
James King is a senior executive at Clear Insurance
