The impact 2012 had on blocks of flats Insurance

A year ago block insurance was a messy business for most concerned. Insurers were claiming to be losing money and then increasing policy excesses to preserve their profitability. Our water table hit record lows and, whilst we were all prepared for the inevitable hose pipe ban, loss adjusters geared up for a dry summer and an explosion in subsidence claims. And then it rained, and rained, and rained.

Unfortunately, yet again, a large number of households were impacted by the floods of 2012. The good news, was that as a result water tables were high, and the expected surge in subsidence never occurred. So, apart from the horrible impact of the floods, it was another fairly benign year for weather events and the forecast for 2013 should be good.

However, insurers continued to lose money, with many blaming plastic pipework for a dramatic increase in water damage claims. Yet block insurance remained a competitive market; the result of an influx of new providers who ensured premiums remained artificially low. In addition, several new providers offered poor quality products that lacked vital policy cover. Many new entrants are now licking their wounds and either withdrawing from the market or imposing significant premium increases.

Just to compound issues, in our ever increasing blame culture, liability claims are on the increase. Genuine claimants should be treated fairly and correctly, but given the increase of these claims and the current financial climate it is only reasonable to question the validity of some of these.
The response from insurers has been to attempt to reduce and recover costs. In real terms this means reducing the cost of their operations in areas such as claims handling, resulting in a poorer customer experience and, arguably, increased claims costing leakage as a result. Furthermore they have developed a culture of holding the managing agent responsible and many are now involved in legal challenges as a result.

So the harsh reality for flat owners is that insurance premiums are expected to increase dramatically and managing agents are incurring extra costs which in due course they will need to pass on. In addition we all face a change of regulator from the Financial Services Authority to the Financial Conduct Authority.
But do not be under the illusion that this is all good news for those acting on a commission basis. Last year I was quite vocal about commission disclosure and this has not gone away. In addition insurers are looking to reduce commission payable to insurance brokers and all parties in the chain, which is good news in theory for flat owners. This is a glimmer of hope during what, otherwise, is likely to be another challenging year.

Meantime, the experts predict the subsidence threat has not gone away and last year’s rain will have increased tree growth. So, if you have been putting off that tree maintenance programme, now would be a good time to action it.

Paul Robertson is Managing Director of Midway Insurance Services Ltd and 1st Sure Ltd