Attitudes to risk and insurance go hand-in-hand, but while many of us are prepared to skip policies for items such as mobile phones or washing machines, resi lettings is an area where insurance is a must.
For starters, the assets involved are usually an individual’s most valuable, while lapses of judgement, misdemeanours and malicious behaviour can take everyone involved down an expensive legal path. Letting agents do have a crucial role to play when it comes to insurance, clearing up misunderstandings, overturning scepticism and ensuring everyone is protected – even themselves – earning a little extra income along the way.
In this issue we take a look at the most relevant insurance products and industry trends that are applicable to letting agents, tenants and landlords today.
Not cost but comprehension
Let’s start with the crudest facet of insurance – the cost. Everyone in lettings is feeling the pinch, whether they are affected by the Tenant Fee Ban, rising monthly rents or the final phase of mortgage interest tax relief changes. Having to absorb another cost is a bone of contention but the pitfalls of being uninsured outweigh the premium and it is this aspect that provides leverage to agents wanting to create better protected tenancies – and earn commission in the process.
Mark Tidridge at Rentshield Direct says it’s often a lack of understanding about insurance products, rather than the cost, that puts people off. “An agent can step in to the role of helping people really comprehend the benefits and value of insurance, as well as enabling them to recognise the possible consequences,” says Mark. “This is something rarely considered right at the outset of a property investment or tenancy but once it has been fully explained, they are more likely to consider the purchase of an insurance policy.”
An agent can step in to the role of helping people really comprehend the benefits and value of insurance, as well as enabling them to recognise the possible consequences. Mark Tidridge, Rentshield Direct.
Keep cash flowing with rent guarantees
Letting agents may feel it’s very counterintuitive to highlight the negatives attached to buy-to-let in an insurance pitch but as Vicky Quinn-Campbell from HomeLet highlights, insurance is there to protect profit as well as property – essential in the current fiscal climate and against a backdrop of rising rental values.
Tenancy issues can be very costly for landlords. Now the average cost of an eviction is over £1,000, without taking into consideration the associated loss of rent. Vicky Quinn-Campbel,l HomeLet.
“It can be very costly for landlords. The average cost of an eviction is over £1,000, without taking into consideration the associated loss of rent,” says Vicky, who adds that the largest claim area in the landlord section at HomeLet is non-payment of rent – due to a tenant either choosing not to pay or not being able to.
The most likely professional indemnity claims scenario within agency, is a breach of the agent’s responsibilities at the beginning of a tenancy, which leads to financial loss to the landlord. Andy Halstead, LetAlliance.
Figures supplied by Let Alliance’s Andy Halstead serve to highlight the financial black hole created when tenants fail to pay: “In 2019, we paid out £3million in unpaid rents to landlords, ensuring agents earn their fees and landlords receive monies.”
Therefore it comes as no surprise that HomeLet and Let Alliance and other providers, say rent guarantee and legal protection are the most popular products offered to landlords via letting agents.
Looking at offering rent guarantees agents can choose policies that are provided on a ‘net cost’ basis, such as those offered by Let Alliance. These give agents the ability to mark up the service they offer to landlords and earn valuable incremental revenue. It’s also worth checking whether landlords’ legal protection is provided in with the rent guarantee as standard – sometimes it is bundled up with landlords’ buildings and/or contents policies but it can be a bolt-on or stand-alone policy.
A two-pronged attack
What is emerging in the insurance sector is a ‘prevention and cure’ approach, which aims to reduce instances of non-payment of rent but also compensates landlords who take a financial hit. HomeLet is one of a number of suppliers who offer a package comprising of a high quality reference with a rent guarantee attached to provide the ultimate safety net. Not only does this method reduce risk for the landlord by striving to place the most reliable tenants in situ in the first place, it also gives letting agents reassurance that a regular source of rent will be forthcoming to the landlord, whatever the tenant circumstances.
Bricks & mortar matter
While a landlord’s monthly cash flow is crucial, there is no requirement to take out rent guarantee insurance. On the flipside, property investors using a mortgage will usually be required to prove they have buildings insurance.
Damage to a property’s structure, with the landlord’s fixtures and fittings, can cost thousands to rectify. Adequate landlord-specific buildings insurance is essential.
Damage to a property’s structure, along with the fixtures and fittings supplied by a landlord, can costs thousands to rectify. Adequate landlord-specific buildings insurance is essential and this can form the backbone of a letting agents’ insurance proposition to landlords. Even better are landlords’ building policies that also include contents cover – stipulated as items belonging to the landlord that are left in the property for the duration of the tenancy.
It’s worth knowing that by far the most frequent claim at Rent Guard is for accidental damage to a landlord’s fixtures and fittings. The provider also says theft claims are significant, as are claims relating to weather events, such as those in the wake of Storms Ciara and Dennis. With this in mind, be sure to verify under which circumstances the policy will pay out. Also check the small print with regards to accidental, intentional, unintentional and malicious damage, so landlords have peace-of-mind that every eventuality is covered.
A swing towards bespoke policies
There is a rise in custom-made insurance packages for the lettings industry that can be built on a case-by-case basis – a great response to the fact that every property, approach to lettings and potential claim is different. Rentshield Direct is one provider offering a very flexible approach.
“Our bespoke landlords’ buildings and contents policies can be tailored to the customer’s needs to provide comprehensive cover,” says Mark. Add-ons that can make a policy robust enough to withstand the most turbulent of tenancies include cover for malicious damage caused by tenants, property owner’s liability up to £2 million and legal expenses covered to protect against property disputes.
Also offering a myriad of options for a ‘build your own’ insurance package is HomeLet, with its list of optional extras including employers’ liability, legal liability, alternative accommodation costs paid if tenants have to move out following an insured event, emergency assistance, and boiler and heating cover.
Taking care of tenants
While much is made of protecting landlords and their income – and rightly so as they are now the sole paying client in a highly compliant environment – agents who educate everyone in the lettings ecosystem will enjoy smoother tenancies and increase revenue potential. It can, however, be hard for agents to temper the ‘sell’ with genuine authenticity.
If an agent can put their customers at the heart of their business, with appropriate training and authorisation, they can approach any insurance matters with confidence. Steve Jones, Rentguard.
Steve Jones at Rentguard says most reputable letting agents should feel comfortable advising tenants on insurance matters as much as they are landlords. “Our belief is that if an agent can put their customers at the heart of their business, with appropriate training and authorisation, they can approach any insurance matters with confidence.”
Contents cover – dispelling the myth
Selling insurance to tenants also gives agents the opportunity to clear up the grey area of who is responsible for insuring what, with many renters entering tenancies believing everything under the roof – all contents, fixtures and fittings – is covered by their landlord.
The most popular tenant-focused insurance product supplied by Let Alliance, HomeLet and Rentguard is tenants’ liability. This allows a tenant to potentially cover their deposit should they damage the furniture, fixtures, fittings and contents owned and supplied by the landlord – kitchen cabinets and carpets, for instance.
Often confused with the above but just as important is tenants’ contents insurance – a completely different product. While tenants’ liability insurance covers damage to items that exclusively belong to the landlord, a stand-alone tenants’ contents insurance policy protects the personal possessions owned and moved in by the tenant.
Thankfully, the current trend in this market is to include the tenants’ liability insurance as part of tenants’ contents insurance as standard, which, of course, makes for a simpler sell on to tenants and provides a comprehensive level of cover without the need to take out two separate policies.
Rentshield Direct’s tenants’ contents insurance is a good example of an ‘all in one’ policy covering both aspects. There is a protection level of up to £50,000, which includes accidental damage as standard, and the product comes with tenancy liability insurance built in.
HomeLet offers a similar dual deal, with its tenants’ contents policy including tenant liability as well as optional extras including extended accidental damage cover, bicycle cover and high value personal possessions cover.
In lettings there are a number of scenarios outside of troublesome tenants that can lead to serious financial and legal situations – some that will test the deepest financial reserves and the most diligent of agents.
Professional Indemnity insurance remains a hugely important insurance policy in agency. Andy feels the continuing changes within the private rental sector, including numerous compliance and regulatory requirements, should compel letting agents to take out or continue with professional indemnity insurance, especially if they unintentionally misunderstand or misinterpret the rules. “The most likely professional indemnity claims scenario in a letting agency is breach of the agent’s responsibilities at the beginning of a tenancy, which leads to financial loss to the landlord,” says Andy. “If the agent neglects to undertake all relevant checks on the tenant moving into a property and that tenant is negligent, the agent could be held accountable for any resulting damage.”
Damaging professional exposure can also arise in situations linked to the agent’s responsibilities to their clients during a tenancy agreement. Andy adds that if regular inspections are not carried out, or reported defects not acted upon, damage to property or even physical harm to the tenant may arise. “Injury claims can be particularly costly. Whilst the courts will initially pursue the landlord, this type of claim can easily be held against the letting agent for not meeting their duty of care to their clients – both landlord and tenant.”
Products of the future
Insurance providers are busy identifying future risks that may affect the lettings industry, with the aim to offer greater levels of protection in a sector that’s driven by hundreds of rules, regulations, laws and items of legislation. “We can see there are opportunities opening up in the Build-to-Rent sector, which may lead to the development of more large-scale rent protection products,” comments Mark. “In addition, the increasingly legislative nature of the PRS – with impending changes to Section 21 notices – may also mean products are developed to adapt to these, as yet unknown, changes.”