We hear so much about the cost of living ‘crisis’ and increases in intangibles, like insurance premiums, are perhaps the hardest to explain.
In the insurance market, people often talk about “hikes” rather than “rises”. Leaseholders, especially, can feel like sitting ducks because paying their share of the buildings insurance premium for their block of flats will almost certainly be mandatory under the terms of their lease. It’s often the highest individual item on their service charge bill, and they may feel that they have no say in the choice of provider
And it’s probably cold comfort to be told that increases are being seen across most of the wider property market – that’s it’s not just blocks of flats buildings insurance that is being affected.
However it’s still worth shopping aroundand, for those charged with managing a block – be they paid property agents or a residents management company – should challenge renewal premiums or use a broker who will shop around for them.
If you’re an individual leaseholder, don’t be deterred from holding the people who manage your block to account if you have misgivings about too big a jump in your share of a rising premium.
Back tothe original question: why are buildings insurance premiums going up?
There are twokey factors at work here: the cost of rebuilding or repairing damage to a building, and the increasing number of claims being made.
Nobody has a crystal ball or knows whether prices will rise or fall next year. But what we do know is that insurers appreciate the relatively light claims history that is the mark of a well-managed block – and this can often be reflected in the premium quote.
And while you cannot influence global issues, there are some block management issues you can influence and that can help keep premium increases in check.
Check rebuilding and repair costs
Start by ensuring the block is insured for the right amount by checking the Buildings Declared Value (BDV) on your policy document.
Insurers will often just index link the BDV originally declared, and if that was wrong to start with, then the actual amount the building is insured for can get progressively wider and wider of the mark.
Even if the insurer hasn’t asked, consider commissioning a revaluation to keep yourself on track and ensure your building is not exposed to the financial risks of being underinsured.
Remember, insurerscan onlybase premiums on calculations of the costs they might have to meet – their exposure.
To do this they refer to the Building Costs Information Service, which is provided by the Royal Institute of Chartered Surveyors (RICS) – it is as honest a measure as you are likely to find. This tells them what the Building Declared Value (BDV) should be, and premiums are indexed accordingly.
Do remember that the BDV is the value of the property, the bricks and mortar, everything that’s fixed to the property, including fitted kitchens and bathrooms on the day the policy starts.
It doesn’t take into consideration the value of the land or the desirability of the property, so don’t be surprised if it seems a bit low.
You may also see a second higher figure, the Building Sum Insured (BSI). In a nutshell, that makes sure you are covered for any increases in costs over the year – including inflation – which have been especially high in the recent supply chain crisis.
How big an issue is it? Based on the average peak rebuilding costs increases we saw in 2021, Deacon, a specialist Blocks of Flats insurer calculates that a block that would have cost £500,000 to rebuild in 2020 would have run up bills of £544,000 in 2021.
Remember, this is not just an issue if the building is a total write off: every small claim would be affected in proportion if you are underinsured because your policy may not have taken into account the increase in rebuilding and repair costs.
Reduce the number ofclaims
Endeavour to be more attractive to insurers – a lower risk – by finding ways to reduce the number of claims made. Claims history, as we all know, has a major influence on premiums.
Water damage remains one of the most common causes of insurance claims in blocks of flats. You simply cannot remind people in the building too often about the importance of basic maintenance checks and precautions – everything from appliance hoses to dripping plumbing.
Its everyone’s responsibility. Repeated claims will inevitably have a direct effect on how much the block has to pay for insurance – and leak and overflow prevention should be relatively easy to improve on.
Where repeated claims are made for a single cause,like water damage, then premiums or excesses are likely to rise and, eventually, an insurer may decline to provide cover at all!
In insurance-speak, the market is hardening, which means that not only premiums are increasing but also some insurers are less willing to takeon some risks.
Cover and Excesses
And while you cannot escape global trends altogether, you can ensure that your policy reflects your individual blocks’ needs – and avoid paying for cover you don’t need. So make sure your broker earns their money by getting policy terms that reflect your blocks’ individual needs.
Another seemingly quick and easy way of reducing premiums is to opt for a bigger excess, but bear in mind this is the amount you’ll have to pay if you make a claim.
Lower excess, higher premium or higher excess, lower premium? Of course, the insurer may take the decision out of your hands– particularly if there is a claims history that concerns them.
And if the policy has a higher excesses, leaseholders need to remember that the cost of smaller repairs and making goodwill probably be coming out of the service charge budget rather than through an insurance claim. So it’s worth doing the sums on your block before deciding to see if you really will save.