The advent of Covid-19 has given the property sector much to think about. While attention is focused on finding solutions to multiple challenges, from the economic fallout from lockdown to ensuring spaces comply with social distancing, there are several insurance issues which should not be overlooked. In many respects, risk has changed – for better or worse – and action may need to be taken accordingly in order to satisfy any relevant policy conditions, ensure cover is adequate and to avoid paying unnecessarily inflated premiums.
Watch the extended grace period on unoccupied properties
During lockdown, many insurers extended the amount of time commercial properties could be unoccupied before special provisions start to apply from the standard 30 days to up to 90 days. Since premises were forced to shut their doors by government mandate, rather than through any fault of the landlord or tenant, this has given policyholders a much-needed grace period. Now that lockdown is lifting, policies will revert to the standard, except for those sectors which must remain shut such as nightclubs. Where businesses choose to remain closed – for example, restaurants and bars that are not planning to reopen – policyholders should not assume the grace period continues to apply.
Speaking to brokers or insurers direct should help clarify the position. Insurers will make decisions depending on the circumstances: either to extend again for a limited time, or to impose conditions such as regular inspections and turning off services and to restrict cover and/or increase premiums.
Don’t pay over the odds for loss of rent
Property owners could benefit from reviewing the “loss of rent” cover in place for when tenants are physically unable to occupy – for example, owing to fire damage – and check the amount declared when they took out or renewed the policy is still correct for their needs. Given how much has changed in the last four months or so, there’s a strong possibility that they will not achieve the levels of rent they originally anticipated and needed cover for. Even once lockdown eases and businesses start trading again, their revenue could stay well below par for some time and tenants may need to negotiate rent reductions or payment holidays with their landlords, who may therefore potentially be over-insured.
Over-insurance means over-paying for cover that cannot be claimed against in full, and at times like these, eradicating unnecessary costs matters more than ever. Since policyholders usually only review their cover at renewal, and sometimes not even then, this could get missed for months or longer. Insurers should be prepared to adjust premiums downwards. After all, they would surely adjust them upwards if the situation were reversed and rent was set to exceed expectations, but they do need to be notified.
Find ways to cushion the impact of a hard market
The market for property insurance has been hardening in recent years as the cost of claims has increased and regulatory requirements have tightened. This situation has not been helped by this year’s widespread floods and the Covid-induced hit on global stock markets, an important revenue stream for insurers. As a result, insurers are having to be more stringent about the policies they are willing to write and the terms (and premiums) they are willing to offer. We are seeing this happening even on relatively straightforward, claim-free policies: for those who have a claims history or who have a more complex risk profile, the outlook is that much more challenging.
Shopping around is a given, but there may be times when it is not possible to find competitive options elsewhere and only the existing provider will take on the business, perhaps on a less favourable basis than before. If this happens, insureds should push brokers to seek multiple (at least two) options from the existing provider; for instance, a higher excess for a lower premium. Just because an insurer doesn’t offer such choices upfront, it doesn’t mean there’s no discussion to be had.
Also consider improving risk management to achieve better premiums. Again, this is not typically part of the standard conversation when it comes to property policies (applying more usually to the operational trading risk), but it should be taken into account, even if the improvements are planned but not yet implemented. Where insurers are being more stringent with what they are prepared to offer, a good active risk management profile may be the difference between receiving average or beneficial terms.
A cry for help on professional indemnity
The professional indemnity market has also been hardening – to the extent that, earlier this year, RICS-regulated surveyors were struggling to secure cover on terms that complied with its Code of Conduct, which disallowed policies written on an aggregated claims basis and those with fire safety exclusions. After a cry for help from many with recent renewals, as of 1 May 2020, those conditions have been relaxed, making it easier for surveyors to obtain professional indemnity without being in breach of RICS requirements, albeit on a less comprehensive basis than before. This is something to bear in mind when renewals come around.
If you don’t ask you don’t get, as the saying goes, and in the case of insurance, you need to inform too. Within a matter of months the world has seen a huge amount of change and, in insurance terms, that will have an impact on risk that needs to be quantified and cover adjusted if necessary. Sometimes this could work in policyholders’ favour, although not always. The important thing is to get the best cover on the most competitive terms, and for that insurers need to know as much as possible, not just at the outset but along the way too. Now more than ever, communication counts.
James King is a senior executive at Clear Insurance
