The 5 biggest insurance issues keeping property managers awake at night

If a property is underinsured and your policy contains an Average clause it means, in the event of a claim, your insurer will only pay an amount equivalent to the underinsurance. This sounds reasonable in the event of a total loss but it also applies to partial losses.

In a simple example - if the property is underinsured by 75% and you submit a claim for £10,000, the insurer will only pay £7,500. Some brokers will argue their policies don’t contain such clauses but to circumvent this, they require properties be valued every three years; if they aren’t average will apply.

In determining whether you require this cover it is worth checking any debt/mortgage agreement relating to the property as terrorism cover is a common stipulation. According to the Home Office, between September 2001 and June 2011, 250 people in the UK were convicted of terrorism related offences, meaning the threat is still present.

3. VAT

For residential properties VAT doesn’t apply in the event of a total loss but it does for a partial loss. In considering whether you should include VAT in the declared value, does your cash flow have the capacity to cover this throughput? Additionally partial losses are far more frequent compared to total losses. VAT

In any event, when a reinstatement cost valuation is undertaken, review whether the value has included it. Some do, others only apply it to professional fees and others remove it completely. For the same property you have the potential for a 20% delta in value, which leaseholders may obviously find interesting.

If any works are being undertaken when an existing structure is involved the managing agent/owner should insure both the existing structure and the contract works. A number of developments and refurbishments are reliant on the contractor covering the development, meaning in the event of a claim you are reliant on their policy. If the contractor’s insurance is insufficient or their insurer doesn’t accept liability the resulting situation is obviously not good.

In the placement of any insurance policy the broker/insurer will require that you update them in the event of a material change. This often leads to the question of what a material change is. The simple rule of thumb is: anything that you think would alter the insurer’s decision-making process when assessing the risk. Contract works and changes in occupation are typical material facts.

Nick Farrington is Client Executive at St Giles