John Ward is the Managing Director of Insight Property Consultancy who provide a diverse range of service to the property sector.
Buildings Insurance – What you need to know
Buildings insurance is one of the main and highest value items in the service charge but also one of the most important item.
The buildings insurance is required under the terms of the lease but this is not the only or main reason to have it. The insurance is there to protect the building against any damage as well as protect the service charge from covering the costs of repair such consequences as water or storm damage.
In this article I will explain the main aspects of the buildings insurance to be aware of.
Buildings Insurance Valuation
To ensure the building is insured correctly the re-build valuation of the building needs to be undertaken on a 3-5 year basis.
This is to ensure the building is covered to correct monetary value. If it is not then it will be undervalued which could cause issues when it comes to insurance claims.
Whilst it may not affect simple water claims it will affect larger claims from floods, storm damage or subsidence and heave.
The insurance valuation needs to be undertaken by a qualified surveyor and an official report is submitted to both the client and the insurance company and is reflected in the premium.
Insured Risk
One of the most important items on the schedule of insurance is checking to see what risks you are insured for.
Whilst most insurance companies and Managing Agents will ensure the cover is correct there is no harm in checking the schedule to ensure the building is covered for the right risks such as the following;
- Water damage
- Subsidence
- Flood damage
- Legal costs
- Heave
- Engineering (Lifts & Mechanical Equipment)
These are the main risks however the building might also have specialist equipment such as solar panels which needs to be confirmed with the insurance company that is listed and insured.
Fixtures & Fittings
The buildings insurance is undertaken on behalf of the landlord and as such all the landlord’s fixtures and fittings are covered under the insurance.
The question is what is understood to be fixtures and fittings? When you first buy an apartment, whatever is fixed into the apartment would be the landlords fixtures and fittings.
The easiest way of understanding this would be to hypothetically turn your home upside down and whatever does not come out would be covered under the insurance.
However, there are areas of contention on this, the main one being carpets or wooden floors. A lot of insurance companies will not pay out for damage to the carpets or wooden floors claiming they are not a landlord’s fixture or fitting.
This can be disputed on the basis that if you bought the lease from the landlord and they are the same wooden floors or carpets then they are the landlords and therefore are covered.
However, there is an exception to this. If you bought the apartment from another person and they have changed the original flooring and not informed or requested permission from the landlord then the insurance company has the right to refuse the claim as it is not the original landlords fitting.
So it is imperative that if you make any changes to the landlords fixtures and fittings you have permission to do so from the landlord which will ensure they accept the new change and it will become the new landlords fixture and fitting.
Claims Management
The management of the claims by the Managing Agents is one of the most important parts of their services and functions. Ensuring efficient claims management is there to ensure the works are not over priced and the works are done to the correct standard.
This includes claims for works done in the apartments and these can be the most important claims which need to be managed as the contractors can be chosen by the leaseholders which could mean they choose contractors they know which could lead to inflated prices if left unchecked.
The quotes which are submitted are checked and reviewed by loss adjusters who work for the insurance brokers. Whilst the loss adjusters work for the insurance brokers they can still be answerable to the leaseholders and as such they can be requested to scrutinise quotes in more depth.
If the quotes are not scrutinised and are just signed off then this will increase the claims vs premium variance. It is this varience which increases or decreases the premium.
If the amount paid out is more than the premium, then it does not become financially viable for the insurance company to insure the building and as such one of two things will happen.
- The insurance premium will increase.
- The excess will increase to above the average claim amount thus forcing a decrease in the amount of claims to be submitted and decreasing the premium vs claims variance.
By controlling this variance, the leaseholders will have greater influence over reducing the premium and bringing down the overall service charge.
Whilst the above is not an exhausted list all the area of insurance which needs to be noted, they are the areas which help understand and control the area of buildings insurance.
