Michaela Tweedley, director at building and projects consultancy Brawdia, discusses whether social housing providers are at risk of underinsurance.
Social housing providers are being prompted to update their property insurance coverage and give accurate rebuild costs by conducting reinstatement cost assessments (RCA).
This comes after it has emerged that many providers are using outdated or inaccurate data to insure their properties. The push is a result of insurers' growing concerns over inaccuracies in coverage and a greater need for more due diligence across the sector. From underinsurance to difficulties in securing the required insurance cover at a competitive price, working with insufficient data can have several implications for social housing providers.
The sector is dealing with unique challenges due to building cost inflation. The significant volatility in material prices that we saw throughout 2022 has been well documented, with BCIS’ General Building Cost Index peaking at 14.6% annual inflation and the Materials Cost Index reaching 23.5% growth at the same time. While this situation has significantly calmed, prices remain high, and we continue to see challenges around labour and skills shortages having an impact on building costs.
At the same time, operators hold a diverse nature of properties in their portfolios, which include residential buildings, but also offices, halls, community spaces, garages, car parks, and play areas amongst others. This makes accurate reinstatement cost assessments crucial, especially as costs climb in response to the volatility in building costs, high cost of borrowing and labour shortages.
One of the key difficulties lies in ascertaining reliable rebuild costs. For large portfolios of residential, social and supported living properties it is crucial to understanding the archetype, use and occupation of their properties and how these factors impact rebuild costs. This includes assessing any buildings that may require a different approach (for instance high-rise, listed and non-residential properties).
Yet, having interacted with numerous social housing providers, it is evident that most are working with RCAs that don't reflect current values accurately. Why is this? Historically, social housing providers may have either self-insured without needing an RCA or based their insurance on market values, both of which are not reliable. It is not just underinsurance that is a concern here. Using market values as a basis for insurance cover can lead to over insurance. Given the complexity and size of their property holdings and value of the stock lists, it's now advised that all providers undertake an RCA.
In parallel, we are seeing a trend from insurers for higher excesses across the sector as the quality of information providers hold on their assets falls short on minimum requirements that can get insurers comfortable.
The challenge that providers face is that as a result of mergers and acquisition, as well and high-speed organic growth, they often have a collection of property data from multiple agencies, in multiple locations for a variety of uses. Compiling, reviewing, analysing this data, and applying the subsequent advice, is detailed and time consuming, usually requiring additional technical input.
Is agreeing to a higher excess a false economy? Invariably, this will place strain on the provider, not only in financial terms, but also on the estates teams to deliver more reinstatement work, when they are already under resourced in the day-to-day work.
For smaller providers without dedicated insurance teams, there may be less detailed understanding of what is an insured peril, potentially leading to under claiming. The lack of an insurance team can also cause delays to process, and an increased claim cost.
Understanding the full insurance process, from due diligence to reinstatement costs, to reinstatement project management after loss, can make a notable difference. At the same time, by undertaking a detailed review of their assets, providers can reduce their risk exposure to high premiums and complete reinstatement works in a professional, timely, and compassionate manner.
