If you are in charge of buying buildings insurance for your flats, either because you are the freeholder or a leaseholder who helps run the Residents’ Management Company – or maybe a professional property manager acting for the block – then it’s your responsibility to make sure the policy is fit for purpose and that you get the best price for the cover you need.
But where do you start? How can you be sure you have the right level of cover in place? At a competitive price? In the world of insurance premiums it’s good to know that there are some things you can influence to help keep costs down – even if others are beyond your control.
Shop around for insurance
We probably all understand that shopping around makes sense but do remember it’s not just about getting the lowest price but the best price for the level of cover you need. Make sure you are comparing like for like. It’s likely to be a false economy if you discover too late that something isn’t covered: a portion of the building with a flat roof or expensive communal equipment in an outhouse, for example.
Don’t forget to check if the lease asks for specific cover. For instance, newer leases might stipulate terrorism cover; while older ones may state a requirement for cover for fire and explosion. Yet we know from the QDime case of 2014 that if the lease states a property must be insured against explosion, then this must also include terrorism.
Insurers also need to know about who is living in the block. They will rarely refuse cover because of sub-letting on assured tenancies, but they could challenge a claim if you haven’t declared it.
Even better, ask a specialist broker like Deacon to do the shopping around for you. We work with a panel of well-known insurers and have drawn on our experience gained over 30 years to ensure we offer buildings insurance products, exclusive to us, that cover just about any eventuality.
Get your building valuation right
If you haven’t got the right baseline, you won’t be quoted the right price. Do check that the buildings sum assured is up to date. Check out our blog about Buildings Declared Value and Buildings Sum Insured, and the difference, here. You might even be over insured!
Select the right excess
Increasing your excess may help bring your premium down but bear in mind you’ll have to pay this amount out if you make a claim. Lower excess, higher premium or higher excess, lower premium? You may be able to decide for yourself but sometimes insurers will need to take a view themselves – see claims below.
If you do opt for higher excesses, remember that the cost of smaller repairs and making goodwill probably be coming out of the service charge budget: does your track record suggest that is practicable?
Assuming nothing substantial about a block changes from year to year, the biggest factor affecting premiums that you can influence directly is your claims record. Insurance is often the biggest single cost on an annual service charge bill, and this is where every leaseholder can help make a big difference.
Naturally, if there are a lot of claims, then insurers will identify your block as having a higher risk. Escape of water still leads the league table for claims made by blocks of flats. If it keeps happening in the same building, then, of course, either premiums or excesses will rise – or both.
In extreme circumstances, insurers may refuse to include cover for escape of water altogether. Yet this should be a relatively easy risk to manage through regular inspection of plumbing and connections, which should include individual leaseholders making checks inside their own apartments. You can read more about escape of water and how to avoid it here.
What can’t you influence?
Some things you just have to take on the chin, which makes it more important to take positive action over the factors you can try and control.
Rating factors like the location of the building and its structure are obviously things you can’t change, although it could be worth taking a long view and replacing, say, a section of flat roofing which is the reason for a poor claims record.
Nor can you influence the effects of other people’s claims in extraordinary circumstances, such as a severe weather incident. If the number of claims insurers settle goes up dramatically due to a big storm or floods, then the insurance industry will review its pricing in the aftermath.
Insurance fraud is another influence on your premiums that you cannot control. With one scam a minute, the insurance industry has its work cut out to counter the criminals, but it does seem to be making some headway. Figures last summer showed that fraudulent property insurance claims fell by 11% from 2016-17 to 22,000. Nevertheless, that still added up to £100 million worth of fraudulent claims!
Insurance Premium Tax (IPT) is also beyond your control. It’s been around since the ‘90s but an increase to 12% in 2017 saw IPT hit the headlines.
With some knowledge of what you can and can’t influence, the next step is to invest a little time talking to your broker or insurer to ensure you are only paying for what you need. Getting it right pays in the long run!
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein. The opinions and views expressed in the above articles are those of the author only and are for guidance purposes only. The authors disclaim any liability for reliance upon those opinions and would encourage readers to rely upon more than one source before making a decision based on the information.