Insurance is one of those things you pay for but hope you never have to use. You pay for the peace of mind that you won’t be exposed to major financial risk in the event of disaster. Hardly surprising, then, that shockwaves reverberated through the lettings industry when some insurers excluded COVID-19 from their rent guarantee policies. Like a number of business and travel insurers, some providers tried to wash their hands of the whole affair and walk away. But despite the second wave of the virus, insurance products have started to re-emerge as insurers get a better feel for the risk they are facing.
Vouch was one of several rent guarantee insurance providers that found itself high and dry during the early days of the pandemic, when its policy underwriters took fright. “They literally pulled their product from the market – we lost our product for about three weeks,” says company founder Simon Tillyer. He wasn’t alone. “A lot of products haven’t come back online and a lot of features and benefits have been withdrawn, and won’t pay out if someone has been made redundant due to Covid,” he adds.
They literally pulled their product from the market. A lot of products haven’t come back online and a lot of features and benefits have been withdrawn. Simon Tillyer, Founder, Vouch.
Oli Sherlock, head of insurance at Goodlord, agrees the market panicked, though the company’s own policy was not interrupted. “At the start of the pandemic, the vast majority of providers at least paused, if not stopped, fulfilment of the service,” he says. “Goodlord felt that wasn’t the right action to take, and in partnership with our insurers DAS concluded this was the very time these types of policies become most important. The moment that risk occurs, as an insurer you shouldn’t be walking away from it.”
New customer boom
Unsurprisingly, both Vouch and Goodlord have seen a huge increase in the number of full-management lettings agencies looking to use their products. Tillyer says Vouch has taken on board “hundreds” of new customers since its policy came back on the market, albeit at double the original price as the underwriters sought to cover their risk. An annual policy now costs £225 for £15,000- worth of rent cover, up from £105. “Lots of agents have started using it for the first time,” adds Tillyer. “People who have never even considered it before are now going, ‘Right, I need to be looking at this, my landlords are looking for me to provide some level of protection in these uncertain times.’
“What we have done to try to soften the blow of the price increase is to help agents understand it a bit more. Our policy is ‘Let’s hold your hand through it, let’s make sure you’re comfortable with it. If you’re going to put someone through a reference process, send it to us and we will look through it and rubber-stamp it’, and say, ‘That meets the criteria, you can take out insurance on this’.”
At Goodlord, Sherlock has been able to keep the price down to £139, but he stresses there is now a big variation in the policies on offer from different providers, particularly in terms of how long they will pay out for. “Our policy pays for a maximum of 12 months’ worth of payments – most of the others pay for a maximum of six months,” he warns. “I don’t believe then and I don’t believe now that six months of payment is what people expect when they hear the term ‘rent guarantee’, especially knowing that under the current legislation [tenants must be given] six months’ notice. The market vastly increased pricing but didn’t improve the level of cover.”
Goodlord has also taken steps to mediate in cases of non-payment of rent, talking directly to tenants in line with government guidance that landlords must work with tenants having payment difficulties.
“One of the first things we did very early on was build a bespoke pre-claims process which meant we could start to work alongside tenants as well as landlords and letting agents to understand their situation,” explains Sherlock.
“If there is a claim within our policy the tenant is automatically contacted to understand their individual financial circumstance and point them towards support mechanisms, and we then speak to them over the phone and mediate between the parties to see if there is a resolution before going into the claims process.
“Some landlords don’t want to go into that claims cycle because the moment you serve notice and you bring that drawbridge up the behaviour of the tenant changes, too. Any kind of goodwill goes, any kind of understanding that some rent will come in goes, because the attitude is, ‘Why bother, I’m going to get evicted anyway.’”
Sherlock says the approach pays off, with a third of tenants engaging in the process, and intervention preventing arrears from mounting in roughly a quarter of cases.
Paymentshield is another rent guarantee provider that had to withdraw products from sale temporarily, while maintaining cover for existing policyholders.
“The upheaval and uncertainty inflicted across the market by COVID-19 forced a period of reflection for everyone, including us at Paymentshield,” says Sales Director James Watson. “We had to take a step back, take stock, and very quickly evaluate how to best and realistically deliver for our customers.
The upheaval and uncertainty inflicted across the market by COVID-19 forced a period of reflection for everyone, including us at Paymentshield. James Watson Sales Director, Paymentshield.
“We’ve strived wherever possible to maintain the key product features that our customers expect and rely on.” The company’s policy is now back on the market for new tenancies, and it hopes to reintroduce it for existing tenancies in the near future. “With the market uncertainty settling and insurers gaining clarity on the impact of claims, we will soon be able to reintroduce product features, including opening our rent protection product back up to landlords and agents where the property is mid-tenancy,” he explains.
The company wouldn’t reveal its pricing due to “commercial sensitivities”.
Increase in claims
Like Goodlord, Paymentshield works with tenants who have fallen into arrears to try to find a solution. “Our rent protection policies now include a mediation service as standard to help ensure positive outcomes for landlords and agents when courts fully reopen,” says Watson. “This additional service provides end-to-end management of the legal process on the customer’s behalf.”
Mark Batten, director of insurance services for First2Protect, says the firm had no break in its rent guarantee policies due to Covid, nor did it increase prices, but it has seen an increase in claims.
“Much of this can be attributed to the eviction ban,” he says. “While our landlords have the peace of mind that their insurance will cover them for unpaid rent for up to 12 months, as claim volumes have increased, so too has the amount of time it has taken to settle them, and it’s not always straightforward.
Much can be attributed to the eviction ban, placing landlords in difficult situations, particularly those who still have their mortgage and related lettings bills to pay. Mark Batten Director, First2Protect.
“This has undoubtedly placed landlords in difficult situations, particularly those who still have their mortgage and related lettings bills to pay and who are reliant on their rental income to do so.”
To counter this First2Protect also tries to act as a mediator between the landlord and tenant to see what other arrangements can be made, such as a rent reduction or the introduction of alternative payment plans, and Batten says that in many cases this approach has proved successful.
Barbon Insurance Group is one of the biggest providers in the UK when it comes to rent-guarantee policies, covering more than 100,000 properties through its brands Let Alliance, HomeLet and Rentshield.
Let Alliance chief executive Andy Halstead says none of the group’s products have any COVID-19 restrictions.
“Our proposition for letting agents offers a range of protection and flexibility. The majority of rents are guaranteed on a nil excess basis, so 100 per cent of any rent arrears along with the associated legal costs are protected.
Our rent guarantees are not exposed to any COVID-19 restrictions – claims are paid in full and on time, regardless of any government intervention or possession hearings. Andy Halstead CEO, Let Alliance.
“Our rent guarantees are not exposed to any COVID-19 restrictions – claims are paid in full and on time, regardless of any government intervention or availability of possession hearings in the courts.”
He says the group offers rent-guarantee policies on all new lets where it carries out the tenant referencing. “We also offer rent guarantee on existing tenancies and we have many letting agent customers transferring their whole portfolio on to rent guarantee n a single transaction,” he adds.
“It has never been more important for letting agents to provide rent guarantee to their landlords. In a world of great uncertainty, it is essential risk management for landlords’ rents and legal costs to be protected along with the letting agent fee income.”
Barbon’s product pricing is very much dependent on volume, working on a bespoke basis with individual letting agents on either a percentage of rent or a fixed-premium scheme.
When it comes to rent guarantee policies, as with many other things in life, you pays your money and you takes your choice. But always read the small print – the devil is in the detail.