Property Insurance Update
What’s happening in the market and what will impact your premiums in the coming years
The insurance market is a funny place; pricing and an insurer’s presence in the market can appear and disappear seemingly at random and predicting what changes insurers will make is more of an art form than a science. Some years, insurance buyers can benefit from competitive pricing and widened cover. Other years when markets harden, insurance buyers might find that the premium they pay for the same cover as the year before has increased.
The Insurance Information Institute says that for a market to be considered ‘hard’, prices must generally increase an average of 15%. In previous hard markets, premiums have increased by over 25% in three consecutive years before the market started to soften again. We have only seen hard markets 3 times in the last 50 years but there are signs from insurers that we are about to enter into another hard market, particularly in the property insurance sector.
There are a few factors coming together at the moment which could see changes to property insurance premiums and we have pulled together some information for you from multiple sources to help show what’s happening in the property insurance market right now.
Why are Property Insurance Premiums changing?
Increasing costs to rebuild your property
Most property insurance policies will require you to set a ‘Sum Insured’ for your buildings. This figure should reflect how much it would cost if your building was completely destroyed and you had to remove all the debris and rebuild it. Setting this number is up to the insured but unless you are an expert in this field, how do you know you’ve got it right? Setting it too low can be really costly. If you have set the sum insured too low, ultimately you will not have paid the correct premium for the risk to your property and insurers can proportionately reduce any claim settlement you are due. We strongly recommend getting a rebuild cost assessment for your property by a Chartered Surveyor to help ensure you have your property insured for the correct amount.
The rebuild cost of property generally increases year on year along-side inflation increases. Labour costs increase each year due to increased living costs and materials follow the same pattern as the costs of production increase. The CEO of the Builders Merchants Federation said that many manufacturers of materials decided to halt production in the early stages of lockdown which meant that the supply of materials has been impacted including some vital to rebuilding property such as sawn timber and bagged cement. The CEO of the Construction Products Association has said that even those products that are in stock are unable to be delivered due to the shortages of wooden pallets required to deliver them. With supply shortages, panic buying ensues and inevitably the cost of materials to rebuild a property increases.
As properties cost more to rebuild, the cost of property insurance claims will also increase. This means that if insurers want to continue to provide you with the right cover and operate successfully, they too have to increase their premiums.
The Impact of Climate Change
You won’t have escaped the rafts of information about climate change over the last few years and we are starting to see the impact it is having with more frequent bouts of extreme weather. Whilst many people across the UK are big fans of heatwaves and extended periods of minimal rainfall, these conditions can cause the soil to dry out, shrink, crack and shift causing property subsidence. One of our key property insurance partners, AXA, say that subsidence is one of the most serious problems a property can suffer and it is costly to fix. With predictions of long dry summers becoming a frequent occurrence, insurers are predicting that an increased number of subsidence claims will be reported which means they will need to factor this into the premiums they charge for this element of cover.
We have also seen an increase in extreme storm events in the UK over the last few years. As you will have seen in the news, a number of storms have led to severe floods across the country and the associated damage to properties has cost insurers significant amounts in claim settlements. Whilst increasing claims costs will see insurers increasing their premiums, be reassured that our key insurer partners use sophisticated system mapping to identify the risk of flooding for each area of the UK and also calculate your premium based on the exact location of your property.
Lockdown Impact
With more people spending time in their homes since March, it has meant that burglary rates have decreased in residential properties. If you are a property owner, you may not be insuring the contents of your property. Burglaries still happen and for cover to apply there often has to be forceful or violent entry to the property which will mean repairs are required and a claim is often made. As claims go, these are not the most expensive for an insurer but it is positive that the risk of burglary has reduced since the beginning of lockdown.
AXA has said that since the beginning of March the number of fire claims has increased due to the lockdown. Fire claims generally increase in the summer months due to more people enjoying barbeques, fire pits or chimineas outside that, unfortunately, get out of control and spread to their own property and often any neighbouring properties. AXA and many other insurers have reported relatively few fire claims this year compared to the total number of property claims but the impact of a fire can be catastrophic and so even a small increase in fire claims is a concern for insurers.
Escape of Water
Whether it’s a burst pipe, blocked drains or plumbing problems, damage caused by escaped water is an issue. The Association of British Insurers (ABI) have reported that insurers are paying out £930 million in UK water-related claims each year and this figure has been steadily increasing for the last 15 years. The ABI has also said that their figures show the average cost for an escape of water claim is £5,305 and this too is increasing.
From our own data on A&T client claims, the majority of our property claims are due to escape of water and we too can confirm that the number of these claims has increased over the last few years (so it’s fair to say our claims team are experts in these sort of claims). A prominent reason for escaped water has come from plastic pipework cracking or bursting and another prominent insurer in the property market, NIG, has said that the average cost of an escape of water claim specifically from burst pipes is nearly £9,000. This is nowhere near that of a fire but the sheer volume of claims, for this reason, has had a significant impact on insurers and they are now having to look to increase premiums in order to pay for the claims which are showing no sign of slowing.
What does all this mean for you?
Having reached the end of this article, you can be forgiven for thinking that your property insurance premiums are going to sky rocket! There are a number of factors that insurers are looking at which will mean that they need to increase their reserves in order to pay future claims. Ultimately, anyone buying insurance is doing so because they want a claim to be paid but unfortunately there are some insurers out there who aren’t as financially secure as others. Should an insurer go into administration, they won’t be paying out on any claims.. This situation has occurred a number of times over the last few years with insurers such as Enterprise Insurance, Alpha Insurance and Gable Insurance to name a few. As I am sure you will appreciate, we want your claims to be paid and this is why we primarily work with A-rated insurers when sourcing cover for you.
At A&T we have been liaising with a number of the UK’s leading property insurance providers in recent months. Some have suggested that they will be looking for property premium increases of over 15% on expiring premiums to ensure they maintain financial security. Utilising our relationships with insurers we have negotiated cover enhancements that apply only for A&T clients in addition to a commitment on lower premium increases in comparison to the increases theses insurers have in place for other brokers. We are committed to providing you with the best advice possible and want to ensure you are getting quality cover at a great price. If you have any questions about your insurance policies or anything contained within this article, please don’t hesitate to get in touch.