Thousands of UK households were faced with severe flooding last year during the wettest winter on record. Some owners of properties damaged by floodwater are still struggling to pay for the clean-up. In the event of flooding, or other major incident, the landlord is responsible for the building and fixtures and fittings, they are not accountable for their tenants’ possessions.
The tenant’s responsibility
Most landlord insurance policies include liability, legal, buildings and contents cover, emergency assistance, and occasionally rental guarantee. But all tenants must be made aware that while their landlord’s policy may pay to rebuild or repair the physical structure of the property, it will not cover replacement of the tenant’s possessions that were damaged or lost in the event of a catastrophe in the building occurring, or otherwise. Instead, it is strongly advised that renters take out specialist tenant’s insurance cover to protect their goods.
“It is the responsibility of the tenant to ensure their own contents are insured, as landlord insurance will only cover the landlord’s contents in the event of a flood, burst pipes or fire,” said Nick Breton, Head of Direct Line for Business.
“Landlords should inform their tenants exactly what they are covered for so that if an insurance claim needs to be made, everybody is clear in advance,” he added. “This information could be provided as part of the tenant agreement, meaning that both parties are able to easily identify their own insurance responsibilities.
The importance of tenant’s insurance should not be underestimated because failure to properly insure their belongings can have devastating consequences for the tenant. Yet, while most homeowners would not even think of going without insurance, many tenants do not have adequate cover.
Recent research by Co-operative Insurance found that a third of tenants do not have any form of home insurance to protect their contents. This proportion is almost six times larger than the comparative figure of six per cent for those who own their own home.
According to the study, the most common reason that those renting have no contents cover is that they cannot afford it, and yet industry data shows that the average contents policy costs just £2.44 per week.
Tenants often undervalue their possessions, with 29 per cent of those without insurance feeling that they do not require contents cover as they do not have expensive belongings. But think of your own belongings – could you afford to replace them all? For most people, the answer is a resounding “no.” So now ask your tenants to consider it – do they have a lot of stuff that could easily be lost, damaged or stolen?
Ashley Payne, Lettings Manager, Wembley Park Residential Limited, said, “Most tenants do not realise just how many personal belongings they have. Clothing, jewellery, electrical items, laptops, mobile phones all add up therefore it’s important to make a list of all these items to get some sort of perspective on the overall value and how much it would cost to replace.”
According to Co-operative Insurance, the average value of contents estimated by tenants is £16,644, while for homeowners this doubles to £31,651. What’s more, industry findings highlight that the average theft claim for contents now costs £1,700 whilst this rises to £11,000 in the event of a fire, suggesting that “prized possessions and home contents are worth protecting” whether people own or rent their property, according to Anthony Lewis, Head of Insurance for The Co-operative Insurance.
“This research uncovers a worrying insurance gap, amongst a growing proportion of the UK population,” he added. “Our research suggests that many millions of people are taking a risk without any cover in place in the event of theft, or other perils such as flooding and fire.” While tenants cannot be forced to buy a contents policy, as it is not a legal requirement, some landlords do insist that their fixtures, fittings and contents are protected by a tenant’s liability insurance product.
Adam Male, Founder of online estate agent, Urban.co.uk, commented, “Some landlords write into their contract the need for tenants to take out accidental damage insurance and, as a tenant, this isn’t a bad thing as it can add extra protection to their deposit.”
Tenant’s liability insurance
If a landlord’s furniture, fixtures and fittings are damaged beyond reasonable wear and tear, whilst in the tenant’s care, the tenant may be liable for the cost of replacing them. This could mean losing part or all of their tenancy deposit which they may need for the next property they are planning to move in to. But if the tenant is suitably covered with adequate insurance, like a tenant’s liability policy, this would in most cases protect their deposit.
“It is useful to remind a tenant that they are responsible for any damage caused to the property during their tenancy,” said Sarah Emmerson, Acting Head of Tenancy Services at Strutt & Parker. “For example, if a tenant was to spill a glass of red wine on a property’s newly laid cream carpet, they will be covered if they have taken out specialist cover and will be able to make a claim.”
Most Tenants’ liability policies typically include cover for up to £5,000 towards the landlord’s property, including fixtures and fittings.
Tenants’ liability policies usually cover up to £5000 towards the landlord’s property, it gives the tenant peace of mind.” Steve Jones, Rentguard
“For a relatively small monthly premium, they [tenants] can get peace of mind against this financial burden,” said Steve Jones of Rentguard. “This [insurance cover] can often help protect the tenant’s deposit, by paying out for items or repairs that would otherwise come out of it.”
Duty of care
From contents protection to liability cover, it is essential that tenants are made aware of the numerous types of insurance products on offer, including the various income protection policies available to help renters pay their bills should they suffer accident, sickness or redundancy.
“It is the agent’s responsibility to educate each tenant with their options and what it can mean for them,” said Hedie Yeganeh, Lettings Manager of Fine & Country in Mayfair.
Fine & Country actively ensure that the tenancy process is bound to a small or larger pack for the tenant to take away consisting of information about property details, tenancy and a welcome letter.
“The effort to add a supplement of a price quote to each tenancy is minimal for the agent but makes a profound difference for the tenant,” Yeganeh added.
With standard tenant insurance policies ranging from around £80 to £250 per annum, depending on the value of the contents being insured, and with tenant’s liability cover additionally costing from around £60, there are vast opportunities for letting agents to earn extra revenue from insurance referrals providing agents with an additional income stream.
75% of our tenant insurance sales come through letting agents for which we pay them a commission between 10-25%.” Julie McMullan, HomeLet
“Around 75 per cent of our tenant insurance business comes from letting agent referrals, for which we pay them a commission of between 10 and 25 per cent depending on their level of knowledge,” explained Julie McMullan, Head of Insurance at Barbon Insurance, parent company of HomeLet.
According to McMullan, those agents that work closely with HomeLet receive regular “training and support” to help guarantee that they are handing tenants the “right literature about their insurance options and at the right time” to help maximise insurance leads, with their “best performing agents” earning close to £7,500 per annum from insurance referrals. There are also plenty of recurring revenue opportunities for letting agents.
Andy Halstead, Chief Executive, Let Alliance, insisted that the potential earnings from tenant insurance sales and renewals are “significant.”
He said, “Just 500 policies should generate between £25,000 and £30,000 per annum. When considering the capital value of a lettings business, recurring insurance revenue should be valued at 2.5 times the annual commission income.”
Given that tenants genuinely do require the protection that a tenant’s liability policy or tenant’s contents policy offers, this gives letting agents the ‘perfect touch-point’ to secure the ‘insurance conversation’ during the tenancy process, as long as they are compliant with Financial Conduct Authority (FCA) regulations, according to Halstead.
It is important that agents seeking to earn money from insurance referrals are aware that they are not permitted to offer advice about the various insurance products on offer not unless they are authorised to do so by the FCA. But they are allowed to act as an ‘appointed representative’ or an ‘introducer appointed representative’, with the latter requiring greater expertise and training, allowing them to potentially earn higher referral fees.
Unfortunately, Halstead added that “a mix of confidence and complex FCA regulation” often results in many agents leaving the insurance decision and process with the tenant, but he insisted that, “it does not need to be this way”.
“Let Alliance finds the conversation about insurance fits perfectly well with the tenants going through the referencing process,” he added. “Letting agents do not need to make the insurance sale, a simple introduction, no more than handing the tenant an insurance leaflet during the property viewing process works well.”
Without having tenants’ contents and liability insurance in place, renters have a significant financial exposure, which could cost them dear in the event of damage being caused to the landlord’s fixtures and fittings or the tenant’s own belongings. This provides letting agents with a genuine opportunity to add value to their service, ensuring that both tenants and landlords are adequately protected, while offering an additional revenue steam through insurance referrals in the process.
- Co-operative Insurance www.co-operativeinsurance.co.uk
- Direct Line for Business www.directlineforbusiness.co.uk
- Fine & Country www.fineandcountry.com
- HomeLet www.homelet.co.uk
- LetAlliance www.letalliance.co.uk
- LetRisks www.letrisks.com
- Rentguard www.rentguard.co.uk
- Strutt & Parker www.struttandparker.com
- Wembley Park Residential Limited www.wembleycity.co.uk
- Urban www.urban.co.uk