Non-standard roofing materials and susceptability to flood and subsidence all serve to heighten the risk of a property to insurers. Sam Barret examines the consequences for homeowners
New building projects, climate change and unconventional property design can present problems when it comes to trying to purchase household insurance, and while non-standard risks still only represent a relatively small proportion of the 22 million property-strong market in the UK, it is a proportion that is growing fast.
Flood risk is the most significant cause of concern, with an estimated two million properties at risk of flood. Of these, 400,000 are regarded as being at very high risk. While additional flood defences take some of these homes off the danger list, new building projects - such as the plans pencilled in for the Thames Gateway - mean there are plenty of properties to replace them.
Subsidence is another major headache for property owners and insurers alike. Some 400,000 properties in the UK have already been underpinned, although this represents only a small proportion of properties that have experienced problems. Adding the estimated 50,000 thatched properties in the UK - as well as the hundreds of thousands of homes with flat roofs - to these figures, and non-standard properties account for more than 10% of the market.
In premium terms it is an even larger slice. When the British Insurance Brokers' Association launched its scheme for non-standard properties in January, in association with Bureau Insurance Services, the figure put on this potential market was £1bn - equating to roughly 20% of the £5bn household total.
The growth of direct writers has made the non-standard market even more visible. "Direct writers have streamlined the insurance process for the majority of properties," says Arthur Philp, underwriting policy manager at Norwich Union. "Most properties will fit the criteria specified and can be offered cover but every so often there's a non-standard one that requires a bit more effort from an underwriter."
Although the direct insurers are keen to appear open to all risks, failing to meet their criteria can mean a property is declined cover. "We don't automatically red line properties and will consider all risks when assessing a new property," says Simon Ziviani, spokesman for Direct Line. "If the homeowner has a history of a particular problem - for instance flood or subsidence - we will suggest they remain with their existing insurer."
Steven Ward, household manager at Allianz Cornhill, agrees and says, where possible, cover will be offered: "In some cases, the event will be inevitable and we won't be able to insure it. In many cases, however, risks can be managed or eliminated altogether."
As an example, he points to flood risk: "If this is a one-off event there may be measures we can take with policyholders to reduce the risk, such as moving sockets up walls and using water-resilient materials in any repairs, but if the property is likely to flood every year it's not an insurable risk."
When it comes to flood risk, the Association of British Insurers' recently renewed Statement of Principles states that its members will continue to provide flood cover to existing customers where there are plans to improve flood defences in the next five years. "Whether it's a flood risk or subsidence, it is easier for customers to stay with their existing insurer. They'll understand the history of the cover and the risks involved," adds Mr Philp.
However, staying with an existing insurer is not always possible or sensible. "The harsh reality is that most insurers don't want things that are outside the norm," says John Simms, personal lines manager at Chubb. As well as facing the potential of a decline, premiums can be loaded, exclusions slapped on and terms and conditions added that make the cover at best expensive and at worst restrictive.
Mr Philp admits that in these cases specialists are best placed to deal with the risk. "Although I believe a large proportion of the non-standard market is still written through the standard market, where risk is unusual we would pass it to a specialist," he explains.
All manner of special schemes are now available, with many of them underwritten by Lloyd's syndicates. Focusing on these non-standard areas means there is more experience to understand and manage the risk involved. "It is a good market for brokers to demonstrate their expertise," says Graeme Trudgill, technical services manager at Biba. "While the direct writers may decline insurance or charge huge premiums, brokers can respond to the needs of the client and provide them with suitable cover. It is all a question of understanding the risk."
Insuring properties that have suffered subsidence is a perfect example. While a history of subsidence claims causes alarm bells to ring for many insurers, those operating in the specialist market see this risk as one that can be relatively easily managed.
For instance, as well as covering properties at risk of flood or whose occupants have criminal convictions, the Biba scheme covers properties that have suffered from subsidence.
Chris Jordan, managing director of BIS, explains how risk is assessed under the policy: "If the property has previously been underpinned, we'll send a surveyor out to assess it. There is a £146 survey fee for this but they have the expertise to assess what caused the subsidence in the first place - whether the steps that were taken have rectified it as well as assessing the risk and recommending any additional steps to reduce it."
Depending on the problem, recommendations and endorsements could then be included within the policy. These could include requirements to pollard nearby trees every few years or to have drains inspected on a regular basis.
Some argue that the fact a property has suffered problems in the past makes it a better risk. "Underpinning deepens the foundations and this should be sufficient to prevent any problems in the future," says Andrew Dear, director of technical services at loss adjuster Ashworth Mairs Group. "It depends on the individual property though. For example, if only one elevation has been underpinned this won't necessarily remove the risk altogether - so you do need to take into account the property's individual characteristics when assessing risk."
Both Mr Philp and Dale Howells, property underwriter at Lloyds TSB Insurance, say that where an existing customer has had a problem with subsidence it will not affect their premium. "They'd pay the standard rate for the area," says Mr Philp.
However, underpinning as a strategy for dealing with subsidence is becoming much less common. There are 400,000 underpinned properties in the UK and although the number is rising, with approximately 5% of subsidence claims now resulting in underpinning it is a gradual increase. "It's very expensive to underpin a property, so insurers are more likely to take other steps to deal with subsidence and many are incorporating more preventative action into their procedures," says Rob Withers, managing director of Withers Group.
Among the steps that insurers are more likely to consider are removing or pollarding trees and dealing with damaged drains. "Subsidence to a property can arise as a result of leaking drains," says Mr Howells. "Once the drains are repaired, the property invariably stabilises and requires cosmetic repairs only."
Taking such steps fortunately means that cases can be dealt with significantly faster, often taking less than a year rather than the two or more that could easily be the case when monitoring a problem before underpinning occurs. Nevertheless, the fact that the property suffered a problem can last much longer. "Insurers will often turn away new business unless they have a reason, such as a connected client, to cover it," says Jonathan Kitchen, business unit director at Towry Law Insurance Services. He believes that even when such risks are covered there will usually be strict rules about what the policyholder needs to do to secure it - such as pollarding or removing trees - or subsidence may be excluded altogether.
Thatched properties can also present a problem, causing many insurers to decline cover or slap on exclusions and conditions. "The way that a thatch burns means you don't tend to get many partial losses," says Mr Simms. Indeed, once alight a thatch will usually burn completely, taking much of the upper storey with it. Additionally, as so much water is needed to control the fire, this can result in water damage to lower storeys of the property. So not only is there an increased risk of a fire, there is also the potential for a larger claim.
Carrying this increased risk means higher premiums. For example, Mr Simms says that where a property with a standard roof is paying £5000, if the roof was thatched the premium would rise to between £5500 and £6000.
Other conditions can also be added for thatched properties. Mr Dear says that where a property has an open fire it is usually mandatory to insist that the chimney is swept at least annually. "Insurers will also impose conditions on the type of fuel that is burnt and some may insist there are no open fires, both in the house and outside," he explains.
Regular electrical checks are common and many insurers insist on the homeowner having fire extinguishers to hand. "You'd also need details about the type of thatch, its age and how close the property is to the fire brigade," adds Mr Kitchen.
A more urban roofing solution - the flat roof - can also cause underwriters nightmares. A small flat roof on a porch or extension generally will not present a problem but if it accounts for more than 10% of the roof then cover can be problematic.
Flat roofs tend to wear much quicker than standard roofs, and need to be replaced every 10 years or so depending on the exposure. Subsequently, often because replacement does not happen, there is an increased risk of damage and leaks into the property. Although the damage to the roof would not ordinarily be picked up by insurance, claims could be made for water damage within the property if accidental damage cover is included in the policy.
"It is a hassle factor for an insurer," says Mr Philp. "They shouldn't cost more to insure but insurers do tend to pay out more when a flat roof is involved."
He adds that where a claim comes in for storm damage to flat roofs there is often a question over whether it is a result of the storm or just straightforward wear and tear. "Insurance isn't designed for wear and tear but sometimes it's difficult to prove these cases," he says.
In order to take this type of claim into account, premiums tend to be loaded. Depending on the area of the roof, it is not uncommon to see an extra 10% to 15% added to the premium. Terms may also be applied to make the risk manageable, such as insisting on an inspection every 10 years.
While taking a more individual approach to managing risk might not fit the streamlined processes of the direct insurers, for the specialist and broker market it offers a growing market. "Just because a property is non-standard it doesn't mean it's sub-standard," says Mr Ward. "If you know what to look for, and how to deal with it, this market can offer a very good risk."
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