Throughout 2024, BCH Ltd has observed continued pressure on the flats market, with leaseholders facing rising costs in most areas.
Rising costs over the last few years have been very well published, and the reasons for it are unsurprising to us all, but the reality is, even into 2024, the cost of materials and labour have continued to be an issue. Whilst some of the dizzying % increases during the pandemic period have settled to more “reasonable” levels, there hasn’t been a decrease in costs, there wasn’t a reset. So, the costs of materials and labour in the construction space are continuing to rise and are building on those earlier high increases. This inflation has of course increased the cost of routine maintenance activities such as landscaping, decoration or minor repairs which has impacted service charges, but also the property insurance costs. Data shows insurance premiums have risen significantly due to increased reinstatement values and a lack of capacity. The impact to leaseholders and property managers throughout 2024 has been increased service charges, with insurance being a significant proportion of this.
So, it’s understandable that Property Managers are under pressure to minimise expense for their leaseholders wherever possible. It’s a tricky position, and one in which we empathise with as the cost-of-living crises really took hold throughout 2024. But with insurance premiums for flats based on rebuild costs rather than market value, this is certainly not an area to cut corners. Accurate rebuild valuations are critical, as underinsurance can result in devastating financial implications during a loss, but over insurance could be costing leaseholders more than it needs to. What cannot be forgotten is that proper insurance delivers peace of mind and ensures full financial protection for all stakeholders.
The risks of underinsurance are vast. If the insured value is set too low, claims may be proportionately reduced under the policy’s “average” clause. For example, insuring at 80% of the rebuild value means claims will be reduced to 80%, leaving leaseholders responsible for the shortfall; a potentially devastating outcome.
Over insurance, on the other hand, unnecessarily inflates premiums without providing additional benefits at the time of a claim. BCH has identified instances of valuations being significantly incorrect, leading to excessive costs for leaseholders.
Brokers work to secure the best value for clients, considering the market and tailoring policies to match their needs. They may suggest alternate options to manage premium costs such as offering higher excesses or limited peril cover. However, they should never suggest lowering the insured value purely to reduce premiums, as the risks of underinsurance far outweigh any immediate savings.
As the year closes, those responsible for property management are reminded to revisit a crucial but often overlooked aspect of their budget: insurance. Whilst insurance has become referred to as a “grudge” purchase due to relentless increases, reducing insurance values to save on premiums can lead to significant financial consequences.
With the industry under the spotlight, we predict a similar trend in 2025. It is essential to stress that insurance and professional valuations should not be areas to cut corners on.
With rising costs and industry pressures likely to persist in 2025, insurance remains a critical investment in security. Accurate valuations and robust policies are essential to protecting financial interests and protecting properties that are people’s homes.
There are however some green shoots in the industry. Brokers are reporting an increase in capacity and appetite by insurers which will inevitably increase competition, no doubt helping premiums.
Working with experts like BCH to establish correct rebuild values and partnering with reputable brokers ensure that properties—and the people who rely on them—are well protected for the right amount of cover and therefore a fair premium. Furthermore, regular reviews to insurance values will ensure that insurance remains adequate as circumstances evolve.
In the end, the peace of mind that comes from being properly insured is worth every penny.
