Property owners is a familiar market for most brokers. New risks and technology could help to squeeze a profit out of the increasingly tight margins in the sector, writes Sam Barrett
Both the residential and commercial rental markets are performing strongly as property ownership falls out of reach and favour for many individuals and businesses.
But while this suggests the property insurance market should be lucrative, tight margins and flat-lining rates mean brokers must develop their expertise to succeed.
Good knowledge is essential. “You really need to understand the marketplace and the requirements of the customer,” says Alan Smith, director at Chambers and Newman. “This is increasingly the case now with a whole web of things affecting the cover that’s required.”
Smith explains a broker needs a good insight into the landlord and how they operate; the properties, including the construction methods used; and all the practical and legal issues behind the type of development, the way it’s funded and the nature of the leases.
Old cover, new risks
“Risks are emerging on the legal side that just weren’t around 20 years ago,” he adds. “Environmental issues are coming to the fore but we also see buildings with a cyber exposure. Similarly, as more tall buildings go up, there can be issues around right to light.”
Landlords across residential and commercial also face a host of legal requirements including immigration status checks, energy efficiency ratings and, for commercial properties, five-yearly electrical testing.
“You need to understand what they [the landlord] have to do,” says Steve Parker, group commercial director at Coversure. “It may even be worth establishing relationships with local companies, such as electricians and accountants, that can support the landlord.”
Specialist knowledge
It’s also crucial to have in-depth knowledge of the cover that’s available. “It’s a specialist product,” observes Steve Gamble, property account executive at PIB. “You need to understand the wordings as there are some specific extras that may be required.”
As examples, a property owner might look to include cover for malicious damage by a tenant or for alternative accommodation covers in the event of a loss that makes the property uninhabitable.
Given the specialist nature of the cover, some brokers put together their own unique wordings for these markets.
However, Gamble prefers to turn to the market when placing cover. “Policy terms do change so by going to the market we can ensure we always have the most up-to-date wordings,” he explains.
Although the market requires specialist knowledge, with premiums flat-lining, margins are slim. To remain profitable, brokers must differentiate themselves.
Escape of water: tears before bedtime?
Escape of water claims increased by 31% in the domestic market over the last three years, according to figures from the Association of British Insurers (ABI). But, while these rising costs should put premiums under pressure, there’s little evidence of this.
Steve Gamble, property account executive at PIB, puts this down to excess capacity. “There’s still so much competition in the market that it’s not coming through on the rates,” he adds. “I can’t see this changing unless we have a major weather event.”
Alan Smith, director at Chambers and Newman, is also disheartened by the disconnect between claims and premium. “It’s just not feasible,” he says. “We do try to use insurers that take a more sensible long-term approach. I know it’ll end in tears before bedtime.”
Expert advice
Risk management advice can support this, demonstrating expertise and helping to keep claims down. For instance, with escape of water (see above), it’s possible to fit leak detection devices that will shut down the water and alert the property owner.
However, Parker says that while risk management advice is valuable, property owners aren’t yet switched on to leak detection.
“We don’t see a lot of interest from clients, nor from brokers coming through our wholesale arm Policyfast,” he says. “This may change.”
Developing claims services can also drive profitability. Smith explains: “Smartphones make it much easier to manage a claim remotely but you still need to be empathetic and have the right support in place.
“We have relationships with contractors who can provide very specialist repairs that will resolve a claim quickly.”
Technology solution
Technology also has an important role to play in driving profits. “Margins are tight so the more a broker can automate, the better,” says Martin Gosnell, real estate underwriting manager at QBE Europe. “Sending out renewals piecemeal isn’t appropriate any more. Brokers need to have centralised platforms that enable them to approach every insurer.”
Brokers also require a good understanding of how to market this product. However, Parker says this can be a challenge, especially if a broker’s targeting the smaller buy-to-let investor.
“It’s impossible to tell who’s a landlord and there are few ways to access them easily,” he details. “One of the biggest opportunities is to approach estate and letting agents. This can be a good source of business but it’s a route well-trod.”
That is exactly what PIB believes it has done through a partnership with a website that markets to smaller landlords. “We also have our website, which is a good source of business,” Gamble adds.
Good, old-fashioned word of mouth can be particularly powerful too. For example, Gosnell says he often sees brokers getting involved in the conveyancing when a client is disposing of a property. “If they do a good job, they can find themselves working with the new owner.”