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Property Owners Insurance – Market Summary

Property Owners Insurance – Market Summary

2019 represented a turbulent year for the Property Owners Insurance market, which can now be considered to be entering a ‘hard market’.

Insurance trends in 2019 have culminated in the November 2019 White Paper – ‘From Water Claims to Climate Change – Why Property Owners Insurance Costs are rising.’ A hard market is characterised by:

  • A reduction of capacity within the market – this can either be via insurers capping their exposure within a class of insurance, or withdrawing altogether and ceasing to underwrite that class.
  • More stringent underwriting – during a hard market underwriters will apply more robust underwriting practices, including but not limited to:
    • increasing policy excesses
    • limiting the insured risks, for example removing flood or subsidence cover
    • applying more onerous conditions/endorsements, for example requiring actions to be taken by the insured to limit risk
  • An increase in premiums for the same level of risk.
  • An increase in reinsurance premiums, directly causing insurers to increase their own premium at a level above inflation.

There are a number of factors, which have the ability to cause a hard market, and in the instance of Property Owners Insurance they can be noted as:

1) Extreme Weather Situations

Impacting a large percentage of an insurer’s portfolio. Properties are being subjected to more severe weather conditions on a more regular basis, including:

  • Flooding within the UK in November 2019. The regions of Yorkshire/Humber, East Midlands, West Midlands and parts of South England were struck by serious river and surface water flooding.
  • The ‘Beast from the East’ in 2018 which cost insurers in excess of £194m dealing with burst pipes alone.
  • 2018 Summer Heatwave which led to £64m of insurance costs for Subsidence claims.

2) Adverse Claim Trends

There has been an increase in the frequency and severity of Escape of Water claims. Figures released by the Association of British Insurers in 2017 revealed that the average cost of these claims rose by 31% in the three years prior to 2017. In 2016, the total cost of residential escape of water claims. In 2016, the total cost of residential Escape of Water claims amounted to £654m.

3) Fire/Building Costs

The Association of British Insurers reported that insurers paid £1.3bn for fire claims in 2018, making it one of the most expensive property risks. As well as lightweight materials being more combustible, larger, open-plan spaces in industrial building do not contain a fire once it starts – this can lead to more widespread damage.

The Royal Institution of Chartered Surveyors found that building costs in the UK increased by 13.5% over the past five years, and by 27.5% over the last decade.

4) Modern Construction Processes

For example, lightweight materials such as timber or metal frames, composite panels and plasterboard may be cheaper than traditional brick or stone, but they can create greater fire risks.

This also includes internal and external cladding used to make buildings more energy efficient – not only are these often combustible, but they are also susceptible to water damage.

More plumbing in households can also be linked to increased risk factors; more complex plumbing systems will have increased pressure points for failure, which can be concealed. Furthermore, high-rise residential homes mean that if a water leak does occur, numerous floors could be affected by the resulting damage. Plastic fittings are also more prone to failure than traditional copper piping.

A number of composite insurers have recently changed their strategy, including:

  • Chubb – withdrawal from the Residential Property Owners insurance market in 2019.
  • Allianz – withdrawal from the Residential Property Owners insurance market in 2019, primarily due to large claims.
  • RSA – significant reduction in capacity characterised by Escape of Water and Flood claims.

As a result of the current state of the market, we adopt a proactive approach, contacting clients well in advance of renewal who hold Property Owners Insurance. This allows us to conduct a complete marketing exercise in order to ensure that the most comprehensive and competitive terms available, are provided.

We would open this offer up to any prospective Property Owners clients who may be concerned about a potential increase in premium at renewal; we are able to provide alternative quotations for you, given that we have access to a number of specialist Property Owners Insurance markets, both composite and Lloyds.

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Written by John Clarke

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