Insurance Premiums are often the first item leaseholders look at in a set of service charge accounts. This is because it is usually one of the bigger figures and, in recent years, year on year comparisons of these figures year on year will show an upward trend.
So why is this?
- Contracting Market
This tragic events at Grenfell prompted insurers to re-evaluate the risk profile of their portfolios and many didn’t like what they saw. Several insurers increased their premiums but many simply exited the market. There are now less players in the market and less competition. This trend continues with AXA Insurance announcing their exit from the market in October 2022.
- Supply Chain
Brexit, the pandemic and war in Ukraine have made both materials and labour harder to come by forcing up prices. Insurers base their premiums on a figure known as the “Building Declared Value” or “BDV” which is calculated from data supplied by the Building costs information service. This value often causes confusion as it is always below “market value”. This is because the BDV is calculated as the cost of rebuilding the entire property and is NOT based on the value of the land or desirability of the building and/or surrounding area.
To ensure that buildings are not underinsured, it is good practice to obtain an insurance re-instatement report every 3-5 years. Unfortunately, BDV’s have been on the increase and premiums have had to follow suit accordingly
- Poor build quality
Water leaks are still far and away the most common reason for an insurance claim. Builders are increasingly using push-fit plastic pipes from plumbing purposes and these systems have a higher failure rate than copper-based pipes.
- Environmental effects
Global warming has caused increases in flooding and therefore increased the risk of flooding in buildings located close to rivers. Many insurers now run for the hills at the slightest hint of damp that could be caused by a nearby river. Those that do offer building cover either do not include flood risk or have exceptionally high excesses.
What can be done?
- Shop around. What might be a poor risk for one insurer may be attractive to another.
- Encourage all leaseholders to maintain and monitor internal water systems.
- Report anything to an insurer that could reduce the risk profile e.g. water leak detection systems, fire safety systems.
- If you’ve had a claim, demonstrate to your insurer evidence of measures to mitigate against the risk of the same issue re-occurring.