Don’t ignore the rental market

Geoff Hall

November 18, 2019

Geoff Hall (pictured), chairman, Berkeley Alexander

When it comes to general insurance (GI) we talk a lot about homeowners and even landlords cover, but what about tenants?

Most mortgage brokers won’t deal with tenants, but it’s a large and growing sector of the property market that still needs advice.

The demand for privately rented homes continues to grow.

An additional 560,000 households are expected to be living in the private rented sector by 2023.

This takes the total proportion of those renting privately within the housing market to 22%, up from 20.6% today.

With renters posing such a significant potential market; and given that most first-time homebuyers will have been renters before buying, this is a slice of the market that brokers should not ignore.

It’s a way for advisers to build an additional client base, particularly those advisers who can help on savings and investment plans to allow the renter to save up for a mortgage deposit.

When it comes to GI for this sector, what are the key considerations?

– Do renters have adequate home contents insurance? It is the landlord’s responsibility to provide buildings insurance, but for renters their own contents are their responsibility.

– Renters need to protect their income – if they are made redundant or unable to work due to a sickness or accident, how will the rent be paid?

According to recent figures from Shelter, three million renters (half of private tenants) could not afford to pay rent for more than a month if their income ceased.

Income protection should be just as important for renters as for those with a mortgage – they are equally at risk of losing their home.

Is ignorance bliss?

As reported by Mortgage Introducer recently, according to research by Atom Bank around a third (32%) of Brits would buy a property knowing that it had a major issue such as damp or structural problems.

More than half admitted to not investigating common issues such as damp (54%), central heating (54%), electrical (58%) and roof (59%) problems. These are worrying statistics.

Customers are expected to know about the condition of the property they are insuring, including what they should “reasonably know”.

That means not just ignoring tell-tail signs of damp or cracking.

It also means doing suitable due diligence, such as having an appropriate homebuyers report when buying a property.

If a crack appears weeks after buying the property and it transpires the movement occurred prior to the purchase, the insurer is likely to decline the claim if they feel the client should have been aware of the damage.

Of course, if there is a suggestion the seller has deliberately hidden the signs, for instance freshly wallpapering over cracks prior to the sale, there could be recourse back to the seller, but who would want to be left in that vulnerable position.

Ignorance most certainly is not bliss when it comes to GI, so if your client wants to make a saving by not having a homebuyer’s report, explain to them the potential issues and how such a saving could be a false economy.

Additionally, renovation projects have become popular over the last few decades.

Buying a property with defects with a view to renovating either to live in or to sell for a profit is commonly seen as a good investment choice if you have the stomach for it; but are these buyers aware of the insurance implications?

Renovation projects will need different, specialist insurance – standard GI policies aren’t enough.

High net worth (HNW) – a hard market

There is less capacity in the HNW sector of late and evidence of consolidation, after some insurers have reduced the amount of business they write, and other insurers aren’t stepping up to take that business over.

As a result, rates are going up and this naturally means people start to shop around if they don’t understand how the market works.

For the savvy broker this is certainly an opportunity for brokers to prove their value.

Once the nature of the market is explained to clients, they’re less likely to shop around, particularly if the conversation is focussed around the value the broker brings.

Clearly no client will be happy about prices increasing, but the reality is that prices are rising across the board.

It’s at the lower end of the HNW market where the service and product is getting more commoditised, but that’s not what true HNW is about and arguably isn’t the ideal target business for HNW brokers.

If you’re always talking about price you’re not talking to the right people.

Have the conversation with your clients early and explain the market dynamics. As ever demonstrating real HNW service will be key; remember generally speaking HNW clients are asset rich but time poor so will value your work in making it easy for them.

It means ensuring the policy provides all the right cover and is tailored for their very specific needs.

The hard market will be a real opportunity for good HNW insurance providers and brokers to shine and deepen client relationships.

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