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Why Landlords might struggle to find insurance
Whether you are a first time landlord or you’ve been building your portfolio for decades, there’s nothing more frustrating than being unable to insure your buildings.
Often a condition of Buy to Let mortgages, a Landlord’s policy (without add-ons) is usually less expensive than a home and contents policy for the same property, due to a lack of features such as contents or home emergency cover in the base policy. Landlords policies can be harder to compare because they fall into the ‘commercial’ insurance category which drags behind consumer policies in terms of availability, with landlords often requiring the services of a broker to access the full range of suppliers.
Although a good insurer should always give a reason for declining to quote for a policy, these can sometimes ‘drop off’ in the chain between underwriter, broker and landlord. Some insurers or online systems are automated, giving no reason for a decline, and others may simply not give a reason.
We know that this can be frustrating, so we have put together the following common reasons that landlord insurance is declined, with suggestions for what to do next, in the hopes that it helps you to obtain a suitable policy.
Table of Contents
Schemes
In cases where it is difficult to obtain quotes for a property, insurers and brokers will often collaborate to create ‘schemes’ – special insurance policy types that have been modified to suit one or more types of high-risk property.
An example of this is thatched roof properties. These are usually considered fire risks, but specialist brokers exist with policies designed to cover (or exclude) common risks associated with thatched properties. Customers are often shocked and a little upset to find that the policy they purchase is underwritten by an insurer that had already declined them in their search on the open market – that’s usually because large insurers like to limit their risk through a middle man like a broker, or an MGA.
By creating special terms and limiting access to in-person or bespoke web forms only, insurers can gain some confidence that whoever is applying for terms is made aware of special restrictions (limited fire damage cover, for example), or terms and conditions such as regular inspections.
Schemes exist for almost all of the examples given below, and they are great option if you have been declined. This is also why you might be declined by an insurer through their own website, only to obtain a policy in their name later on.
Policy availability is getting better all the time, with online providers like Alan Boswell allowing you to input how your property is non-specific and quickly obtain a shortlist of insurers (or brokers/scheme providers) who may be able to quote.
Property Type
Build & roofing
Build materials, age of property and the percentage of flat roofing in a property are all reasons why an insurer might decline to offer insurance terms. Flat roofing, for example, is prone to leaks if not inspected regularly, and some older or non-standard construction buildings can be at greater risk of fire, subsidence or collapse.
When an insurer declines for these reasons there is not often much that can be done, but in rare cases you may be able to demonstrate that you have mitigated the risk, for example if the flat roof is new or regularly inspected, or that the construction materials have had special treatments or surveys carried out in order to increase confidence in them.
Mixed use
Buildings which combine multiple types of usage are typically harder to insure than those which are 100% one or the other, since policies will need to be broad enough to cover multiple claim types.
With anything other than residential mixed with relatively light commercial use (e.g. convenience shops or other low impact trades), it is usually best to approach a broker with the specific mixed use property, as they may be able to access specialist schemes.
Business Type
Certain business tenants are typically harder to insure than others. Often this is due to specific risks they bring to a landlord’s policy that the majority of insurers are unwilling to cover against. Here are a few examples:
Children and Vulnerable People
Any business working with children or vulnerable people (for example day care or health care centres), is potentially prone to more and/or more expensive propertyliability claims. Since landlord’s insurance includes liability cover for injuries caused as a result of the property (such as loose roof tiles falling off, trip hazards, unsafe landings/staircases), insurers are usually reluctant to offer terms unless they specialise in covering businesses like this.
It becomes even more difficult when properties of this type are combined with residential properties. Other than ensuring that buildings are kept well maintained and up to date with any legal health and safety requirements, there is not much that can be done to mitigate this short of obtaining terms via a specialist insurer or broker, generally at a higher premium.
Fire Hazards
Fat Fryers are a common restriction for commercial insurance – they are, of course, significant fire hazards, but there can sometimes be wiggle room in terms of the capacity and usage of them. For example, tabletop models are generally more accepted than large freestanding units.
Of course, this doesn’t help if you are looking to insure a fish and chip shop with three large fryers, but it is an avenue for discussion if underwriters are initially unwilling. Adequate and regularly maintained ventilation plus regular inspection can also be a condition of any policy that does offer coverage, so check wordings just in case.
Oil/Fuel Storage and oily rags are commonly found in garages and auto repair businesses, with insurers tending to avoid insuring properties with these businesses inside where they can. Those that do will impose strict rules about storage, location and activities near fire hazards.
Again, reading your wording for special terms and conditions will help, as will making sure to adhere to any requirements.
Tenants
The type of tenant your property hosts is also a factor in obtaining insurance terms, usually due to the risk of damage increasing with certain tenant types. Here are some main examples:
HMO’s (House in Multiple Occupation)or Shared offices
Due to multiple users/occupants coming and going with multiple keys, shared properties of this nature are often declined outright by most mainstream insurers, although those that do agree terms will also tend to increase their premiums.
If you are declined, you can ask for a ‘forced and violent entry’ clause – this would exclude claims for theft where there is no evidence of, you guessed it, forced or violent entry. Since, with multiple occupants coming and going and potentially losing keys or leaving doors unlocked for thieves (or even stealing from each other!), this is the most common cause of insurance claim, so a forced & violent entry clause gives insurers some comfort.
Student Accommodation
Students are the bane of property insurers. Not only do they often fall into the ‘multiple occupant’ category of tenant, with all of the issues already detailed, they are also unfortunately the least experienced, most prone to accident or oversight category of tenant.
In housing terms they are like learner drivers – whilst the majority are safe and careful, inexperience can lead to mistakes and damage, such as leaving a tap running, leaving an oven or gas burner on, leaving windows or doors open or unlocked, and throwing parties. There is not much you can do about a decline due to student tenants.
It’s possible that with few tenants (one or two) and regular landlord inspections, insurers might concede, but usually for students a specialist policy or scheme is required.
Unemployed or local authority tenants
Properties with any of these tenants are hard to insure due to the uncertainty factor – will an unemployed or council-placed tenant be able to maintain a property in a good state of repair? Unfortunately for tenants of this nature, insurers are also concerned about elements such as drug use or criminal activities.
That is by no means to say that unemployed or council tenants are themselves more prone to criminality or drug use (which then raises the risk of property damage and other claimable events), but it is not uncommon for those with illegal income sources to make use of properties of these types, making the risk for this tenant type as a whole increase through the actions of a comparatively small group of tenants.
If you are declined for tenants of this type it may be possible to confirm their ability to pay rent, or carry out credit or background checks to satisfy an insurer of your tenant’s good standing. If not, there are specialist schemes but they carry additional premiums.
Holiday Lets
Holiday lets are difficult to insure due to patchy occupation – some are left unoccupied for multiple months and even those with steady usage can fall victim to parties, stag groups or other less responsible users.
All of this increases the odds of a claim. With holiday lets there is also the increased chance of non-standard construction materials, in the case of cabins or even static caravans. For these there are also specialist schemes – it is unlikely that an insurer will offer terms under normal home insurance policies.
Claims History
If a property has had multiple claims (even worse, if one of the above property or tenant type properties has had multiple claims), then insurers are typically very reluctant to offer terms, or if they do these will be extremely inflated, in line with how recent and how expensive the claim was.
If you can evidence that the chances of a repeat claim have reduced (e.g. new locks, new fire prevention system, safer or rebuilt construction), then you may be able to obtain terms at more reasonable prices.
In extreme cases the property may need to go through a broker, who may even need to send the property details to Lloyds of London– the UK’s source of nonstandard and hyper-specialist properties, for a quote direct from a Lloyds underwriter.
Unfortunately, policies of this nature are usually quite expensive, simply due to the time and effort of the professionals involved in addition to the perception of higher risk.
Property Location
Flood zones (mention flood flash)
Being located in a flood zone is a significant disadvantage to any property when it comes to insurance. Usually it’s not possible to argue with underwriters – they will either simply decline to quote or flat out exclude any form of flood damage.
For commercial property, aftermarket protections like Flood Flash could be considered. Flood Flash attaches a device to properties that measures the height of any flooding, and landlords can purchase cover for certain levels, e.g. a £20,000 policy for flooding up to 6 inches from the floor. If the device detects flooding to that height then the policy immediately pays the full amount to help with repairs or replacements.
The only alternative is to show around and make sure to check flood coverage clauses and excesses in every quote – some insurers have different flooding appetites, and some use the lack of flood cover or high excesses to limit the number of flood prone properties they are covering in a given year.
High theft areas
Insurers also check theft statistics for properties when looking to offer insurance quotes. For those that do offer quotes they may specify higher security levels, such as CCTV and shutters for commercial properties, or a minimum lock standard for residential properties.
Upgrading security and subscribing to security response services may increase your likelihood of obtaining terms, but insurers are especially wary of properties in higher theft areas, so as with flooding above, shopping around, checking clauses and using a broker are all good ideas.
Mixed Portfolios
Mixed portfolios can be a good or bad thing. If you are a landlord with many properties, one or more of which is difficult to insure, some insurers like to ‘lump’ the property in with less risky properties, and in doing so they can offer a better ‘per property’ price.
The flipside of this is that other insurers see that one risky property as increasing the risk across the portfolio, so they will increase the ‘per property’ price to compensate, or apply broad clauses that restrict cover for the higher risk building whilst not impacting the others.
Whenever searching for terms with several properties, it is always worth looking for standalone insurance for the ‘problem’ property and comparing that to the price of insuring it as part of a group, to see which gives the best value.
Flooding the Marketplace
Ultimately, all insurers and brokers have links to Lloyds of London – the original UK insurer and the source of a lot of non-standard covers and insurance schemes. If you are looking for cover for a particularly unique or difficult to insure property, it is likely that a London broker, or an underwriter at Lloyds, will have seen your proposal form.
As risks increase the number of insurers willing to quote decreases, until eventually only one or two might remain. As customers, we are used to having a lot of choice, and sending our quote request to multiple brokers or insurers might seem like the best way to obtain a competitive quote.
Unfortunately, this can sometimes mean that the same property is presented to a single underwriter or insurer multiple times. If this happens too often, an underwriter may simply refuse to quote or stick with the first broker to have approached him (which may not be the best broker for you). Underwriters are aware of ‘flooding the market’ and it makes their jobs harder, so they are unlikely to look kindly on it.
For this reason, if you have a particularly difficult to insure property, when approaching multiple brokers ask which insurers they intend to use. This way you can ensure that your property has the best possible chances of being covered without flooding the marketplace.
CCJ’s, Credit Issues or Bankruptcy
Insurers commonly ask applicants if they have ever been bankrupt, have unpaid CCJ’s or have ever had any other forms of bad debt. They then decide whether to offer terms or credit on the basis of your response.
A declinedue to bad debt, poor credit history, or bankruptcy is often non-negotiable, especially if received by an automated system (such as an online form), but by contacting insurers or brokers in person beforeusing their web form, and being completely frank and open about the circumstances surrounding historical financial difficulties, it is sometimes possible to obtain terms.
An example of this is for losses incurred during market crashes, such as the 2007-2008 financial crisis. Insurers are more likely to offer terms if they understand the context and reasons behind any historic financial difficulties and if they can be reassured that these are unlikely to cause problems at present, or in future.
Another benefit of calling in is that at least a quick ‘no we can’t help’ direct from an insurer saves you filling in pages of documentation!
Paying with credit
Some insurers will still offer terms for applicants with a poor credit history, but they may apply a higher credit rate or even withdraw the option of paying with credit entirely. Since a lot of ‘pay monthly’ insurance policy options are provided by third-party credit organisations, sometimes the third party will refuse to offer a credit agreement but the insurer will still be willing to offer a policy.
When this happens you will likely be offered a quote, but only on the condition that payment is up-front. While this is less than ideal if you are declined a policy on the basis of poor credit, asking to pay up-front (if affordable) is one way to ensure you can still cover your property.
Summary
A decline isn’t the end of the world, and it doesn’t mean you can’t obtain a quote elsewhere. Insurers usually ask if you have been declined insurance in the past as part of their initial fact-find, and this is not something to be afraid of – it simply makes an insurer aware that they will likely have to speak with you in order to obtain more details.
Note that being declined a quote is not the same, nor nearly as negative as having had insurance cancelled. Insurers cancel policies when they can evidence fraudulent or incorrect information was used to set up a policy in the first place, a decline on the other hand is more that an insurer is unable or unwilling to offer terms, due to the suitability of their wording or their desire to target other customers.
In summary, whenever you are declined a quote for insurance consider it an indicator that you are better off calling an insurer or broker in person, explaining the issue and trying to obtain a quote that way – most insurers, even if they can’t help directly, are able to point you in the right direction, and being straightforward and up-front about your decline and the reasons for it should serve you well in obtaining terms.