The owner of an unoccupied property will usually discover that their insurance is limited to the basics. We look at a scheme that can cover all eventualities
Insurance for unoccupied properties is not unusual but, given the increased risk of serious damage, the cover offered is often limited. For those wanting a more comprehensive product, however, there is a Biba-approved scheme offered by intermediary Camberford Law.
Camberford Law first created this offering in 1996. Managing director David Ottewill says: “People who own a property portfolio generally have at least one of their buildings unoccupied for various reasons. A property might be empty while it’s being refurbished before new tenants move in, for example.
“The amount of cover that most insurers will provide is usually limited to three or four perils, so you would normally only get ‘FLEA’: fire, lightening, explosion or aircraft. But these buildings are important assets to landlords; on average there is usually a reinstatement value on them of around £100,000-£150,000. To have only limited coverage while they are unoccupied seems crazy.”
Camberford Law’s business is based around developing specialist insurance schemes and, seeing an obvious deficiency in the current market, it stepped in. The product it came up with allows a number of other perils to be added to the basic FLEA coverage, enabling clients to build up to full perils cover on most properties. These include wet perils, which covers storm, floods, escape of water and burst pipes, as well as theft, malicious damage and subsidence coverage. Property owners’ liability is included up to a limit of £1m and landlords’ contents insurance of up to £50,000 is available as an optional extra. The policy remains in force for 12 months from the date of commencement.
By its very nature, this product has inherent business risks. Ottewill says: “The reason insurers don’t usually offer this coverage is obvious because, when these properties are not in use, if something happens – whether it be fire, flood or storm damage – there is no one to take immediate action and the resulting damage will be much greater. Likewise, the chances of there being malicious damage are higher because there is no one there to prevent people gaining entry. So when a loss does occur, it tends to be quite substantial.”
In order to minimise these risks, Camberford Law has a number of conditions on the product: the property owner must turn the water off or keep heating on at a low level between 1 November and 31 March in order to prevent water pipes from freezing and bursting. They must also turn off electricity to reduce the risk of electrical fire. To ensure security, five-lever mortice deadlocks must be fitted on all external doors, and any opening windows must have locks or double-glazing. Finally, Camberford Law requires that the owner or their representative inspect the property every seven days.
Commercial premises must satisfy further points: the front must be fitted with shutters or grills, or be entirely boarded up. All ground floor and accessible windows have to be barred or grilled at four-inch centres or boarded up. Letterboxes and other similar openings must be sealed. And to prevent fire hazards, all loose combustible material has to be kept clear of the property.
Ottewill recognises that the effects of these measures are limited, although he believes they play a major part in making the number of claims viable. He explains: “Having the heating on low does not always manage to prevent burst pipes, if the weather is as cold as it has been this winter. And if you have just left from the last inspection and a fire starts or there is storm damage, there is still potentially seven days before somebody comes back and does something about it. So you can see the extra risk that is involved, compared to a situation where you have somebody coming back from work each day. But what the measures do is reduce the number of losses we have had.”
Despite this, the scheme, which Camberford Law offers purely as a wholesale broker, proved secure enough to get the backing of several Lloyd’s underwriters. Since it launched 14 years ago, the lead underwriter has been Meacock Syndicate, with Novae, Catlin and Atrium.
Shortly after bringing the product to the market, Camberford Law approached Biba to put itself forward as an approved provider for unoccupied property insurance. Biba decided to endorse it and, as a result, members will receive a special discount and slightly higher commissions on it.
Ottewill says: “We wanted to find ways to market the scheme and, as Biba members, we are keen supporters of the organisation. So we approached them and they saw the benefit. We have been there ever since.”
Potential customers who might be interested in the scheme vary greatly, according to Ottewill. “The vast majority of our clients probably have between five and 10 properties, of which one is unoccupied at any one time. Alternatively, they could just be starting a property portfolio and have to do some work on the buildings. Another situation might be that, sadly, a family member has died and therefore they need the insurance while they are trying to sell the house. The scheme can also cover commercial property as well as residential, so it encompasses a huge variety of buildings.”
In terms of commercial properties, the scheme has been used for retail, office, warehouses, industrial units and leisure building, with examples as diverse as nightclubs, hotels and nursing homes.
There has also been some increase in demand because of the recent economic situation. More residential properties have become empty owing to the occupants’ failure to keep up with rent or mortgage payments. And because of the number of shops that have closed in recent years, Ottewill says that a typical example on the commercial side would now tend to be an unoccupied retail unit that is waiting to be re-let following refurbishment, with a sum insured of around £250,000.
Ottewill is confident that the scheme will continue to do good business, and there are no plans for any major changes to it in the coming years. Indeed, he sees the fact it has changed very little in the 14 years since its launch as testament to how well put together and stable the product is.
He says: “We are finding that more and more people are asking for £2m, rather than £1m property owners’ liability cover, and even in some cases up to £5m. But, beyond that, nothing has changed. The excesses have varied slightly over the 14 years but are now the same as they were at the beginning of the scheme.”
This, in turn, he sees as being because of the unchanged need for the product. “I still believe that we have one of the few schemes prepared to offer full perils on unoccupied properties, and that is what is required by a lot of owners. It is a worthwhile product and obviously still has validity, because brokers – both Biba members and not – are still coming to us to place business.” IT