Can social housing weather the storm?
The property insurance market for housing associations has shrunk, meaning one or more organisations could find themselves with uninsured homes in the next 12 months
RISK & ASSURANCE
Image: Istock
Jeremy Flint
Partner, Gibbs Laidler Consulting
Jeremy Flint
Partner, Gibbs Laidler Consulting
Issue 67 | September 2023
Competition is no longer the big stick that is has been for some 20-plus years. Early in 2020, property insurers returned to underwriting discipline – they started to look much harder at risk exposure. If underwriters don’t like what they see, they simply will not quote. Consequently, some insurers are looking to de-risk, having realised the aggregated exposure they are already carrying.
At present, the property insurance market for housing organisations is extremely limited. In Q3 of 2023, there are only three players who have their doors open and are actively considering new social housing property business. Other insurance brokers have expressed interest but are not yet off the ground. This is a very different marketplace to that which the sector has enjoyed for 20-plus years.
The purpose of this article is to raise awareness of the current risks and how housing providers may be able to mitigate them.
What has changed?
There are various reasons for the drought of capacity. Not least of which is the withdrawal of several insurers from the sector, following a sustained period of poor underwriting results. Insurers that remain have finite capacity, meaning they can cherry-pick risks.
So, what happens to the less ‘safe’ risks, or those that are unable to sell themselves?
Housing associations are no longer simply buying insurance. They need to consider themselves selling risk to a financial institution, and there may be elements that the financial institution doesn’t really want. Housing associations need to provide clarity – especially on the riskier aspects of the property portfolio.
New insurer capacity is desperately needed, and underwriters who have not traditionally focused on social housing will be influenced by what they see and hear in the press and on social media. And social media in particular can represent a one-sided view.
These are a lot of scary words to a property underwriter (see box), and they are more prominent than words such as ‘regulation’, ‘regeneration’, and ‘Decent Homes Standard’.
Scary words
- Damp and mould
- Fire safety
- Cladding
- Construction standards
- High-rise
- Climate change and flooding
- Constrained budgets
- Low excess levels
- Low premiums
- Lack of profitability
- Poor data
To provide assurance, key issues to consider here include the following:
Data
Underwriters need a full presentation of the good, the bad and the ugly. And where it’s bad or ugly, they need to have confidence in risk mitigation actions taken by the housing association.
Underwriters need the time to consider the facts, before the case falls into the ‘too hard’ pile. Think of it this way. When each of us buys insurance for our home, we must complete a form with many questions. Subsidence history, occupancy, how many bricks…. But for a housing association, the sector has got used to giving none of this, yet the risk exposure to the insurers may be £X billion.
Underwriting resource
Changes to working practices post-pandemic mean the insurance market doesn’t have resource for new business.
Procurement
For years, the power of competition continued to deliver results. Some procurements have not yet adjusted, and currently do not give underwriters time to consider data during the Invitation To Tender (ITT) stage.
There is a very real risk in 2023 and 2024 that an overly rigid procurement process could contribute to having no property insurance. Therefore, procurement needs to be more strategic, start earlier, and give opportunity for insurers to specify the information they want.
“Underwriters need the time to consider the facts, before the case falls into the ‘too hard’ pile.”
Information
Extensive information is required to provide insurance quotations, particularly around the location and characteristics of the property stock. Above all else in the risk transfer mechanism, risk carriers require clarity and certainty. And in a hard market, they are less likely to turn a blind eye or take a commercial decision in order to secure the premium.
Risk information takes time to collect and for insurers to complete their risk profiling, but this modelling is central to insurers’ willingness and ability to provide quotations. It is essential that the procurement recognises the importance of accurate, detailed information.
Timing
Allow as much time as practicable for the ITT phase of the process. All too often, we see procurement timetables where weeks are devoted to the assessment of bids, yet very little time is allowed for the bidder to prepare their proposals. An absolute minimum is eight weeks for the ITT phase – time between the issue of ITT and its return.
Renewal dates for many social landlords coalesce around the same times of year, creating pressure on insurance providers’ resources, especially for 1 April renewals. Consider moving the renewal date.
Conclusions
The two essential elements necessary for keeping property insured are:
- sufficient time; and
- comprehensive information
Do not stand still.
