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How to reduce a building's insurance premium

Sebright Property Management


It's easy for any experienced property manager to predict the questions that are going to be asked of them by the lessees at an Annual General Meeting. Some of the most predictable questions are "Why is the building's insurance so high" and "How can we reduce it?" There will always be someone at an AGM who tries to embarrass you by saying that they could save everyone a fortune by going on comparethemarket.com or the Martin Lewis website and to be honest ten years ago that was probably true. Property managers relied too much on insurance brokers who were profit-orientated, or on brokers who gave a finder's fee or commission to the property manager in exchange for a mediocre policy at a higher-than-usual price. But now, with changes to legislation and inflation driving insurance premiums far higher than they've ever been in the past, the task of a property manager to try and reduce the cost of building insurance is incredibly difficult.

 

There are however still things that a property manager can do to demonstrate that they are achieving the best possible premium for their client, and I have listed some of them below.

 

Use a Broker


In my view, a good insurance broker is able to obtain better prices but if you were to go directly to the insurer. The price often depends upon the broker's portfolio at the time. They may be in a position where they want to grow the building's insurance portfolio and offer competitive rates, however, the opposite can also be true. So an insurance broker that provides you with a good deal in 2014 may not be able to provide you with the best deal in 2025 So you must be willing to swap and change brokers and leave loyalties behind.

 

Don’t raise unnecessary claims


I have recently taken over the management of a large block of flats in Hounslow And found that the insurance premium was £108,000. This was over £800 per flat (usually we would look at an average of £350 per flat) which is unusually high. When asked to see the claim's history, I found that the property manager, one of the largest in the country, had raised 12 claims on the policy for escape of water and not pursued any of them. This means that every time someone rang up their office and said "I have a leak" the property manager raised an insurance claim even though the leak was so small that the lessees chose not to contact them about it again. I have since learned that the property manager was contracted to receive £250 for every claim raised on the policy!  When the policy came up for renewal we followed all the steps mentioned in this article but also provided an explanation for all the 12 spurious claims, and we managed to reduce the premium down to £65,000 that's a reduction of £43,000!  I strongly suspect that much of that was a Commission being received by the property manager for using a particular broker and as a result the broker not commanding the greatest of premiums from their underwriter... but that is just speculation.           

 

So the one thing that is guaranteed to raise the premium on any insurance policy is a claim.  So I would recommend that at your next annual general meeting, you discuss with the lessees how much an insurable loss has to be before you raise a claim. If for example a leak from under the sink in a kitchen causes damage to the ceiling of the flat below and the cost of the rectification works is say £600, is it really worth damaging the premium for the sake of £600 less the excess on the policy? The answer is no.  So don't raise small claims, instead, you can set a limit as to how much the owner of the flat where the leak emanated from has to pay in order to rectify the damage to the flat below.  Remember when you raise a claim on a policy it stays on the records for six years which means it has a detrimental effect on the premium for six years

 

Brokers fees


Insist that your broker charges a fixed fee rather than a percentage of the value of the policy. This can often save 10% to 15% on the value of a premium. Most decent brokers will be prepared to do this, especially on the basis that they may get a greater volume of work from your company.

 

Shop around


Some brokers are only prepared to deal with certain insurers. They may have agreements to only deal with Aviva and AXA, for example, and at any one time you don't know how much these underwriters want to expand their building's insurance portfolio. So contact other brokers or the insurer directly, as a better deal may just be around the corner.

 

Rebuild value


Undertake a rebuild cost assessment of the building. These days, for smaller buildings, you can employ a firm of Chartered Surveyors to undertake a desktop valuation which is very accurate and only costs £250. This will give you the rebuild value of the building, which directly affects the value of the premium.  You may be surprised at the outcome. Some insurance brokers will automatically increase the rebuild costs of a building by 5% to 10% each year but in reality, the rebuild costs are directly linked to inflation, "how much more the price of a brick is this year compared to last" and up until recently inflation has been at a record low. So you may find that the building reinstatement costs or unnecessarily inflated and that making it accurate could reduce the building's insurance premium.


Consider increasing the excess


It's important that you raise the question "who pays the excess" in the event of a claim being raised against the building's insurance policy at an annual general meeting. The reason for this is that there is no legislation which dictates who pays for the excess in the event of say an escape of water claim so it's best to have documented in the minutes of an AGM an ordinary resolution which states that the excess is either paid for from the service charge account or, preferably, that the lessee whose flat the leak emanates from has to pay the excess. When this question is raised and those present vote on how they would like this issue to be dealt with you can also ask those present to make a decision on increasing the access from say £150 to £300 or £500 in doing so this could have a 5% to 10% effect on the buildings insurance premium while also making it very clear to the lessees that they need to keep their flat in good condition (mastic around the bath and grouting around tiles being prime examples) or they will risk having to pay a £500 excess or a building's insurance claim.

 

Address building risks


Over the last two years, building insurance providers have become more receptive to proactive management. Providing a tree maintenance plan or a proactive leak prevention strategy can have a positive impact on the building's insurance premium. It used to be that a tree maintenance plan was only required as a reactive measure for a building that had suffered subsidence in the past, but insurers are now looking at more preventative measures which can demonstrate that a building is less likely to suffer an insurable loss during their term of insurance.

 

Combine policies


With case law and our regulatory bodies pushing us more and more in the direction of having to have terrorism cover it is often beneficial to have a joint policy (including terrorism cover) rather than two individual policies.  It is also possible to combine the director's and officer's liability insurance with your building insurance.  Both of these options could help reduce your insurance premium.

 

Using one or all of these tactics can help reduce the premium which the lessees in a block of flats are asked to pay.

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