Posted on 31 March 2023
The social housing insurance market is currently in a very difficult place. Companies that provide the insurance are backing away, and the ones that are left have less capacity, in other words they’re reducing the amount of insurance policies they hand out.
There’s always been a limited number of insurers willing to cover social landlords, but in the last 18 months we’ve seen three of the most established providers back away from the market entirely. We’ve also seen the withdrawal of insurance capacity from the local authority Right to Buy sector, which is very closely aligned to the housing association sector.
A large number of housing associations, including ourselves, are now having to find a new insurer at a time when the market is contracting. And, while premiums have gone up significantly, what’s covered has gone down. This trend looks set to continue.
What’s caused this upheaval?
There are a number of reasons for what we’re seeing in the market.
Increased cost of claims
The cost of claims across the housing sector has been steadily increasing for several years now. One area of concern is fire, which is to be expected considering the work needed to make buildings safe again after a fire. We’d expect premiums to go up after a fire, but nothing like the magnitude we’re currently seeing.
The cladding crisis has put tall buildings in the spotlight and insurers are now looking much more closely at all the buildings that they’re being asked to insure, whether that’s in the social sector or not. Rightfully so, they’re asking far more questions than they ever did before. If these questions can’t be answered in detail the insurer is forced to make assumptions based on the information they have. When they have to make assumptions, they’re especially cautious, leading to reduced cover and higher premiums.
Homes being under-valued
We regularly value our homes and other properties for insurance purposes. However, lots of housing associations don’t do this, and some insurers are finding it’s costing more to fix something than the home is worth. Claims are still being paid in full, without penalty, but it means insurers are increasing premiums to cover any uncertainty or lack of information.
One of the main reasons for our insurance costs going up is the cost of reinsurance, which is effectively insurance for insurance companies. Insurers can only pay out up to a certain limit, so they arrange reinsurance to step in if those limits are breached. For example, if there was a flood that damaged a lot of properties, resulting in lots of claims, the insurer may not be able to afford to cover all the repair costs. This is where their reinsurance would kick in. This is called ‘accumulation risk’.
Companies that offer the reinsurance to insurance companies, are also becoming more cautious. We’re seeing the threshold where the reinsurance kicks in is doubling or even tripling, passing the risk down a layer, to the first insurer.
Additionally, the cost of reinsurance across the market has increased by approximately 50% so insurers are having to pay more for less cover. Which, of course, means that they charge more for their insurance.
Another outcome is that insurers are limiting the number of policies that feature accumulation risk. They have reached the limit of how much risk they’re willing to take on, and therefore don’t offer any more insurance policies, even ones with really high premiums.
What are we doing?
If individual insurers are setting limits on the number of housing associations they’re able to cover, the answer lies in attracting more insurers to the sector. This has been the focus of our efforts for several months.
We’re pleased to say that our insurance broker has managed to introduce several additional insurers to the social housing market in the first three months of 2023. We’re confident that more will join as the year progresses. Of course, these insurers like all others, will have limited capacity for risk.
What does the future hold?
This is the biggest shock to the market since 2001 and, while things rebounded quite quickly back then, it seems that it may take much longer this time.
The insurance market is, however, a commercial environment and if insurers start to make a profit from social housing, it’s inevitable that they’ll want to do more within it. If this happens, premiums will become cheaper, and cover will increase again, as insurers begin to compete with each other again.
Whether premiums and cover come back to previous levels is impossible to say but we’ll continue to work to find the best the market has to offer.
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