The insurance industry has grown out of all recognition in the last 30 years and while nobody likes paying for it, most of us have policies covering our buildings, contents, lives and cars. But what about contents insurance for rented properties?
In the 1970s insurers were wary of insuring rented properties, it was (wrongly) assumed that tenants would damage property, so premiums were loaded.
As the lettings industry grew, specialist insurers launched, offering landlords buildings and contents insurance at sensible rates. Letting agents were encouraged to ‘sell’ policies and earn commission – a good source of income. One could also insure against accidental damage by tenants and even malicious damage.
I thought, “Why should the landlord have to pay the insurance premium for damage to their goods caused by the tenant?”
I approached Brian Turney, a respected name in the insurance industry and asked if it we could create a policy for tenants to cover their own contents and accidental damage to the landlord’s goods. Brian almost laughed, saying that the deposit was the ‘tool’ for this. I told him that it was rare for deductions to be made from the deposit for damage; though one might have to charge for cleaning or gardening – as is still the case.
I offered to monitor deposit deductions in our agency for a year. I kept copies of deposit statements and demonstrated to Brian that the risk would actually be very low. He took this on board and we created the first contents insurance policy for tenants with the all-important element of accidental damage to the landlord’s goods. This insurance is now commonplace.
New entrants to the insurance market include ‘No deposit insurance’ which is good news for tenants who struggle to fund their move.
Some agents found it difficult to sell insurance to landlords and tenants; I did not. If you believe in something you can make others believe too. Accidents do happen; tenants were keen to have their deposit returned in full. It is galling to have a deduction for an accident which might seriously eat into the deposit so they were glad to take the cover for a sensible premium. Everyone was a winner – the tenant, the landlord, us and the insurer.
Time marched on, insurers introduced cover for rent arrears and legal expenses. We all know that if a tenant has a problem paying the rent, that problem can quickly also become the landlord’s. Many landlords are nervous of taking legal action and having to appear in court and wary of escalating legal fees, so they don’t take action quickly hoping the problem will go away.
It doesn’t, so I was able to ‘sell’ Rent and Legal Expenses policies to my landlords without problem. Having this cover and an excellent relationship with the insurers we could take action quickly and resolve difficult situations. The problem then – and now – is the time it takes to be heard in court. It is crucial therefore not to delay and to deal with rent arrears immediately.
New laws were introduced in 2000, restricting the sale of insurance policies by agents. This was partly due to mis-selling that had taken place over many years – mainly with life assurance and endowment policies with high premiums. This greatly curtailed the number of agents who could sell policies as they needed to come under the umbrella of a ‘Principal Firm’ who themselves were regulated by the FSA (now the FCA).
Too much red tape for many agents so they left in droves; they could, however, still suggest to clients that cover would be sensible and put them in touch with a broker. We, however, ‘bit the bullet’ and became a Principal Firm ourselves and continued to sell what we believed were essential policies to protect our clients.
All of the above insurances still exist – improved and adapted for today’s market. New entrants include ‘No Deposit Insurance’, covering deductions normally be made from the deposit by landlords or agents. As tenants find it difficult to raise the first month’s rent, deposit and fees this could be a definite alternative.
None of us like paying for insurance but isn’t it better to have peace of mind knowing that even in the event of a problem it won’t be made worse by financial burdens?
Government, however, is to ban on all ‘fees to tenants’. This will impact what can and cannot be ‘sold’ to tenants and may include insurance policies.
Frances Burkinshaw is an independent trainer available nationally for in-house or group training. 01892 783961 or 07887 714341 or firstname.lastname@example.org