In recent weeks we have received enquiries regarding a sharp increase in the premiums for building insurance policies for flats. At present it is mainly flat renewals that are affected but this could spread to any other buildings insurance and it is worth taking time to understand what is happening and why.
Most people would assume that insurance premiums are based on the property’s market value but in fact, blocks of flats are insured based on the cost of rebuilding them as new. This is a more stable way to calculate the costs for rebuilds as market prices can be very volatile.
The sums insured are index linked to measure the cost of rebuilding and ensure they remain sufficient which typically, both for flats and houses converted to flats, brings a relatively small increase year on year.
That is until Covid 19 arrived! The affects of the pandemic have had serious consequences on most aspects of our lives and in the case of insurance are forcing rebuilding costs to rise significantly with renewal premiums subsequently rising to reflect this. For instance, insurers now need to take account of:
- Additional labour costs arising from reduced productivity since the introduction of new Site Operating Procedures issued by the UK Construction Leadership Council.
- Additional costs incurred by the increase in supervision required for working safely during the Covid 19 period.
- Additional costs of obtaining materials caused by local shortages.
- Increases in contractor’s general costs due to extended contract periods.
It is entirely possible that if and when Covid 19 is no longer a significant health threat, the impact of these additional costs could be reversed but for now sums insured will need to be increased to ensure customers are adequately covered.
Other costs to take into account
Insurance premiums have already been rising to reflect the historically low premiums of the past few years and this will have an effect on premiums in the future. Cover usually also includes alternative accommodation while the property is undergoing reinstatement and there will be increased costs for this as the repairs take longer.
Finally, re-insurers (the global companies that provide financial backing for insurers) are increasing their own premiums to insurers, partly as a result of previously low premiums and partly to cover the costs of Covid 19 in their own market.
All in all, property insurance sums assured and therefore premiums, will rise substantially this year and this will put even more pressure on the cost of living for us all. Using an independent insurance broker is the only way to be sure you get the best and most cost effective insurance for your block of flats.