It’s a sobering fact that 82% of UK properties currently don’t have sufficient property insurance protection*. This potentially costly menace is one that affects businesses, property investors, landlords and private home owners and can cause real problems in the event of a claim.
The UK’s property market has been something of a rollercoaster ride over the last 6 months or so. Being one of the UK’s leading providers of commercial property, home and landlord insurance, Coversure has been on this ride and seen demand for property insurance quotes fall and rise with surprising regularity.
The ending of the political uncertainty surrounding Brexit at the end of 2019 saw interest soar after a decidedly sluggish year, only for the recovery to run into the COVID crisis. Now, as lockdown lifts and pent up demand hits a market that has 14%** less rental stock than it did this time last year, it’s little surprise that rents in cities like London are up 9% year-on-year**. This is all good news for landlords, but the rosy outlook could be spoilt for many by two long-standing threats: underinsurance and unoccupied properties.
82% of UK Properties Are Underinsured
According to a report by rebuildassesment.com, 9 out of 10 UK properties do not have the correct levels of cover. Approximately 18% of owners have too much cover and are wasting money, while 82% are underinsured and are leaving themselves open to significant financial implications should they need to make a claim. This is because when a policy is taken out with an insurer, the insurer assumes that the premium you have paid is sufficient to provide cover in the event of a claim. If, however, you have to make a claim and the amount is more than you have been insured for then they can invoke what is known as an ‘average condition’ which means they will only pay you for the amount your premium has covered you for.
Property underinsurance can occur for a number of reasons, the principle ones being:
• Incorrect Reinstatement Value – this is a significant problem for landlords, commercial landlords, property investors and homeowners and is at the root of the property underinsurance crisis that we’re experiencing. The reinstatement value of a property isn’t the market value of the building, rather the amount it would cost to rebuild it. This includes things such as construction costs, demolition and site clearance, architect’s and surveyor’s fees, planning charges, specialist tradesmen etc. Such fees can often be significantly higher than the market valuation and based on the average condition clause in your policy you could be left with a huge shortfall.
Let’s take an example. A Victorian villa in Nottingham has a market value of £375,000 but the reinstatement value is £750,000 as the house is full of original period features and has a cellar. The homeowner pays £250 per month for their policy but to cover the full reinstatement they would need to be paying £500 per month. Disaster strikes and the house needs rebuilding but owing to the incorrect reinstatement value, the insurer will only offer £375,000.
This is not a situation that anyone wants to find themselves in, but if you contact your local Coversure office. they can deploy industry-standard tools to help you get the right level of protection.
• Business Contents Cover Is Too Low – most policies are worked out on a reinstatement basis (new for old) rather than an indemnity settlement (used/second hand) one. When it comes to commercial properties and businesses its important to make sure that your sum insured is sufficient to cover the cost of buying a new replacement and not the price your paid or a second hand value. Business contents routinely have their values written down on balance sheets and this can lead to a shortfall in contents cover.
• Home/Rental Property Contents Cover Are Too Low – while not as fundamental as the reinstatement issue, a shortfall in contents cover is common and can cost you dearly in the event of a claim. Many people – including landlords – forget to include things like curtains, carpets and other fittings, all of which may need replacing in the event of a problem.
• Business interruption indemnity periods are too short – business interruption cover – the cover that can pay out for a period of time should you be unable to trade – is often underestimated by business owners. The main reason for this is a lack of clear advice on how long a period they should have written into their policy. Unless you happen to be in construction or have been affected by a disaster that has forced you to close in the past, it’s unlikely that you will know quite how long it will take to get your premises refurbished after a flood or fire, how long it will take for essential services to be restored or how long rebuilding your customer base will take. This is one of those occasions where caution needs to be your watchword and where getting some specialist independent insurance advice is a must.
Unoccupied Property Insurance
Many property owners don’t realise that should they need to leave their premises or dwelling empty for a period of time, sometimes for as little as 14 consecutive days, then existing property cover levels may be reduced or even become invalid. From an insurers’ perspective an empty property is a riskier property, especially when it comes to business premises. During the recent lockdown, incidents of vandalism and attacks on empty premises rose sharply according to the police*** and these, plus the increased risk of damage by fire or flood, have made having unoccupied property provision more important than ever.
Landlords and second home owners have also faced this problem. Lockdown made moving impossible and landlords saw properties standing idle for months on end, while second home owners found themselves unable to visit or rent out their holiday lets.
Not having the cover you need should your property become unoccupied is a form of underinsurance that is likely to affect more and more people in the coming months. The reasons for this stark warning include:
• Lockdown 2 – while there’s plenty of optimistic talk of a COVID vaccine, there’s also plenty of scientific speculation of a second wave of the virus come the winter. While the Prime Minister has said that a second lockdown is the last thing he wants, the fact that he has said it means it remains a possibility. Were this to be the case come the winter, arguably the worst possible time for a property to be left vacant, then having unoccupied property cover in place would be extremely wise
• Fall in demand for retail properties – our already struggling high streets needed COVID like they needed Amazon to announce free same day delivery. Even after the restrictions have been lifted, many retailers are reporting low footfall as customers continue to shop online out of convenience and over safety concerns. Store closure announcements have come from local independents to high street staples such as Boots, Debenhams and even John Lewis and these may lead to rise in the number of empty shops in need of protection. According to the Retail Gazette, well over 20% of the UK’s retail premises are now empty.
• Fall in demand for offices – an unexpected consequence of the lockdown and the forced transition to working from home for thousands of businesses, was the realisation that they not only could work remotely, but that they actually worked more effectively as a result. Many employees were happy to leave the daily commute behind and business owners could see a new way of working which reduced their costs by freeing them of expensive office space. While this newfound flexibility is great for business, its not great for commercial landlords who have suddenly found themselves facing the prospect of not having tenants. Worse, the upcoming recession may drive many businesses to the wall or force them to downsize so leaving many with unoccupied offices and other commercial properties in need of protection.
Property Underinsurance: The Solution
Property underinsurance is a significant problem in terms of both the number of people who are at risk from it and the severity of the problem should you need to make a claim. Happily, there is a simple solution: contact your local Coversure office. Coversure’s team of independent insurance brokers have the knowledge, the experience and the industry-standard tools to help you avoid the property underinsurance trap. Whether you are a homeowner, an investor or a commercial or residential landlord, they will take the time to examine your circumstances and help you get the protection you need.
With over 90 offices throughout the UK, friendly, independent advice is never far from home. To find your local office please use the Coversure office finder here.
*Rebuild Assesment.com data