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Protect and survive – landlord and tenant insurance

Insurance policies to protect landlords’ income and their properties are essential in today’s market, as Lisa Isaacs explains.

Lisa Isaacs

House insurance image

Lettings insurance isn’t glamorous or sexy and is barely mainstream, bar one Direct Line advert featuring Harvey Keitel as Pulp Fiction’s Winston Wolfe. In a changing lettings sector, however, where asset protection is more critical than ever and growing tenant rights raise issues of discrimination and liability, everyone needs someone – or something – that has their back.

It should be made absolutely clear that lettings insurance is essential and should be an integral part of an agent’s service, rather than be a crude bolt-on. Heidi Shackell, The Lettings Hub.

Heidi Shackell - The Lettings Hub - image

So where does lettings insurance sit in a sector without tenant fees? “The industry must adapt, and it must also be about developing relationships that are mutually beneficial to the tenant, the landlord and the letting agent,” says Heidi Shackell (right), CEO at The Lettings Hub.

Getting involved – refer or sell?

Agents are able to incorporate insurance into their business by following one of two paths – a straightforward fee-generating referral service, similar to that used for conveyancing or mortgages, or actually administering the insurance protection themselves. The latter option means that agents can incorporate insurance policies into their lettings pitch and get creative in regards to how they recoup costs.

The Lettings Hub is one insurance producer that is developing an ‘agent administered’ offering, an interesting option given current guidelines on referral fee transparency and even the threat of an outright ban. “We recognise that some letting agents need a little help to become more efficient and find new ways to generate additional income, whilst reducing their current business costs,” comments Heidi.

This insurance provider currently offers an agent-led model across rent and legal protection, deposit replacement and property damage protection, it is also actively working on other launches.

One of The Lettings Hub’s popular agent-administered products is a guaranteed rent policy. The letting agent is able to take out a policy in its own name (to become the policyholder), with the interest of the landlord noted on the policy.

The documents issued by the letting agent are white-labelled and they make it very clear that the landlord has been noted as having an interest in the letting agent’s policy, and that they will receive the benefit of this policy, should a claim need to be made.

“While there are no referral fees attached to agents that are administering their own insurance products, this structure allows agents to decide how they charge the landlord, adds Heidi.

“Agents can decide to wrap the cost of the policy into their existing management fee, create a new management fee level, or make a one-off charge to the landlord to cover the cost of the additional policy.” It’s worth noting that agent-administered policies can also include tenant-focused cover, so agents can target both their landlords and their tenants.

Cover should not be part of cost-cutting

Educating your clients on liability issues is a great opportunity for agents to add value and demonstrate their worth – but encouraging your clients to spend more money may sound like an uphill task in today’s market. It’s true that when budgets are squeezed, policies deemed unnecessary are the first to be questioned but it should be made absolutely clear that lettings insurance is essential and should be made an integral part of an agent’s service, rather than be a crude bolt on.

Letting agents with extensive knowledge of the market, who understand their liabilities and those of their landlords, will be better positioned to attract new landlords. Eddie Hooker, Hamilton Fraser.

Eddie Hooker - Hamilton Fraser - image

“With once relied upon revenue streams being cut, selling insurance products and services could be a way for agents to recoup some of that lost revenue,” says Eddie Hooker (left), CEO at insurance provider Hamilton Fraser. “The bigger picture, however, is about providing a ‘one-stop shop’ for landlords, many of whom are understandably confused by their obligations. Letting agents, who are evolving with the times, who have extensive knowledge of their market, and who understand their liabilities and those of landlords will be better positioned to attract new landlords and retain the ones they have.”

Arrears and Universal Credit

An emerging concern is a potential increase in arrears, thanks to a new change in the lettings sector. Universal Credit is, by any standard, an incredibly complicated issue but recent research from the TV show Skint Britain: Friends Without Benefits revealed that rent arrears doubled in areas where Universal Credit had been rolled out.

Compounding the issue is the ruling that ‘no DSS’ is a phrase which is now going to be banned from letting adverts, although lettings agencies know that any tenant has the ability to default on rent, not just those in receipt of benefits – and, equally, there are many reasons for defaulting, some beyond the tenant’s ability to avoid.

In the light of Universal Credit’s further adoption – and with wider financial uncertainty – insurance products that guarantee rent and support landlords through the often complex eviction processes suddenly feel very sensible.

Eddie Hooker highlights that regular rental income loss can be catastrophic for the landlord when finances are so finely balanced, “Rent payments are often the sole source of mortgage repayments or a landlord’s primary source of income, so any loss of rent is very damaging.

“It is also worth considering an insurance policy that ensures that the landlord can meet the monthly payment obligations or revenue expectations in the event that the tenant stops paying rent or the property is rendered uninhabitable.”

Hamilton Fraser has already adapted its products to facilitate a sector where renting to those on Universal Credit or housing benefits is the new norm. Its Essential and Premier policies allow for housing benefit tenants, with no difference in cover or price subject to an Assured Shorthold Tenancy agreement. This means landlords are not restricted to whom they can let a property.

Sue you, sir!

Steve Jones, Managing Director, RentGuard says that the lettings industry should be thorough in its approach to insurance products, especially with the Homes (Fitness for Human Habitation) Act 2018 now in force and tenants able to sue landlords over accommodation standards, “We recommend that they take buildings and contents cover for landlords, which should also include public liability cover, but RentGuard also recommends that landlords consider legal expenses with rent guarantee insurance to protect themselves.”

It is very clear that agents have a role to play in informing tenants and landlords on liability and legal matters but what about the agents themselves? Buying insurance policies for your business can be a tedious affair and it’s easy to zone out when you get to the legal cover section. Well, it’s time to tune in – tenants now have the right to sue managing lettings agents – not just landlords – whose properties aren’t fit for habitation.

David Cox, Chief Executive at ARLA Propertymark, clarifies the point by saying if the agent acting for the landlord has been made aware of a hazard, and is not actively trying to remedy it, the tenant then has the right to take the letting agent to court.

“It is, of course, up to the court to decide if the agent or landlord dealt with the hazard in a reasonable time frame. We have been working with our members to make sure that they are ready for the Act.”

Taxing matters

Meera Chindooroy - NLA - image

Another area often overlooked as it’s not one of the obvious pitfalls is tax investigation. Meera Chindooroy, Policy and Public Affairs Manager at the National Landlords Association (NLA), says all landlords should ensure they have specialist insurance in place, including a policy that covers potentially harmful HMRC-led enquiries. The NLA’s membership handily carries this unusual but invaluable cover, “We recommend landlords take out tax investigation insurance to ensure they’re covered, should HMRC decide to examine their tax returns. NLA members receive this insurance as part of their full membership, provided they meet the necessary criteria.”

We recommend that landlords take out tax investigation insurance to ensure they are covered, should HMRC decide to examine their tax returns. Meera Chindooroy, National Landlords Association.

The area of insurance isn’t to be ignored, whether agents are looking to protect themselves or their clients. The peace-of-mind offered in an increasingly litigious sector should be enough to spur agents in to action but the promise of new income is an extra incentive to get more involved in lettings insurance.

INSURANCE FOR STUDENT SHARERS: GUARANTOR INSURE

Tim Wakelin imageIndustry veteran Tim Wakelin, a highly regarded lettings insurance expert has launched the first specialist insurance policy for student guarantors.

Most parents are delighted when their ‘child’ has won a place at university – but not so happy when faced with the risk of liability if problems arise in shared flats and houses.

Guarantor Insure was established by Tim after his son asked him to act as his student guarantor. With no such insurance cover available, Tim partnered with a major reinsurance company and FCC Paragon, to underwrite the policy and provide an expert dispute resolution service.

Dispute resolution, with legal and financial protection up to £25,000, limiting liability to the policyholder’s ‘share’.

The new policy protects student guarantors, who have signed a tenancy contract that legally makes them jointly and severally liable, against being held responsible for the entire tenancy and the conduct of all the tenants.

Tim said, “I was nervous to act as his guarantor because the tenancy agreement had a joint and several liability clause, holding me responsible for the conduct of all the tenants and liable for the full amount of the rent and any damage caused if the tenancy turned sour.

“So I set out to find a way to protect us – and others too. I am really proud of Guarantor Insure as it does just that. We give parents and guardians one less thing to worry about.”

  • A fixed annual payment of £95 provides a dispute resolution service, plus legal and financial protection, up to a policy limit of £25,000, limiting liability to the policyholder’s ‘share’, should a judgement be made against them in court.
  • Agents can manage the guarantor relationship by providing a solution to the issues of being jointly and severally liable.
  • Agents receive 10 per cent commission for each policy – also paid upon renewal.
April 26, 2019

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