Buildings Insurance for Flats

neilogg

The rebuilding estimate is about £9M but the total market value is about £4M.

Listed building constraints inflate rebuilding costs. Buildings are listed in the public interest so why is there no taxpayer help in their upkeep? This is a matter that should be addressed elsewhere.

I accept that insuring a single flat presents problems but are they insurmountable? I can easily obtain economical contents insurance on my flat and the risks must include those to the building. I suspect the root of the problem is the large rebuilding estimate which insurers dislike. The market value of a single flat is much more palatable.

DullGreyGuy

neilogg said:

I accept that insuring a single flat presents problems but are they insurmountable? I can easily obtain economical contents insurance on my flat and the risks must include those to the building. I suspect the root of the problem is the large rebuilding estimate which insurers dislike. The market value of a single flat is much more palatable.

In Scotland, where leasehold never has existed and therefore no freeholder to be the person buying the insurance, it used to be common for individual flats to buy their own buildings insurance, insured at the rebuild cost of their unit (still not market value). 

If everyone plays ball then it can work, especially if there is no meaningful common areas like in old Scottish tenements. They become insurmountable when the flat below you doesn't buy insurance and the block suffers a significant fire impacting your flat and the ones below. Structural work is required on the flat below but they dont have insurance, no material equity and so just default on their mortgage. Your repairs cannot go ahead because you cannot build ontop of a burnt out shell. 

Even in scotland now it's increasingly common for a factoring company to be appointed who will purchase block insurance on behalf of all the owners to avoid this sort of issue. 

£9m is not a large rebuild cost, insurers cover buildings that cost 100x that and more. 

Smithcom

neilogg said:

The rebuilding estimate is about £9M but the total market value is about £4M.

Listed building constraints inflate rebuilding costs. Buildings are listed in the public interest so why is there no taxpayer help in their upkeep? This is a matter that should be addressed elsewhere.

I accept that insuring a single flat presents problems but are they insurmountable? I can easily obtain economical contents insurance on my flat and the risks must include those to the building. I suspect the root of the problem is the large rebuilding estimate which insurers dislike. The market value of a single flat is much more palatable.

Individual policies are unlikely to work, in terms of:

- How the policy is set up and what it is designed to cover 
- How this would work in the event of a claim
- Potential problems if one flat does not insure or if their policy does not respond in the event of a claim

There are so many reasons why individual policies would likely be a problem.

However, you also appreciate that individual buildings policies are also set up on 'rebuilding cost' basis?    If you require cover on a market value basis, you may need to try and have some sort of policy bespoked for you. 

However, unless I'm missing something, surely the reduction in market value would be the cost of repairs.   That being the case, surely it's the rebuild cost that you need to insure for?

If I am correct, what you seem to be looking for is the building insured for the rebuilding cost, but based on a premium on the lower market value?    Not sure you are going to achieve this. 

Good luck in getting this sorted.

SC

neilogg

If a serious event occurred, making my flat uninhabitable, I would wish to recover the market value. Whether the property is rebuilt or not would not be my concern.

huckster

Worked in Insurance for a long time using many different underwriters. Never came across any underwriters that offered cover on market value basis.

Legally because of the listed nature of this risk, I would be surprised if there was no requirement in law to Insure for the reinstatement cost.

If there was a fire affecting part (say 50%) of the building, the claim costs might exceed the market value of all 14 flats.

If this type of property was only covered for market value and not reinstatement,  in the event of a fire where the reinstatement cost did exceed market value, I would question what legal consequences might follow. Could those who opted to under Insure the property be legally liable to pay for additional reinstatement costs?

neilogg

I'm not sure of the precise legal position but I understand that, for listed buildings, in the event of total destruction, there is no legal requirement on owners to rebuild. If this is true, I doubt there would be a more stringent requirement for other properties.

Smithcom

neilogg said:

I'm not sure of the precise legal position but I understand that, for listed buildings, in the event of total destruction, there is no legal requirement on owners to rebuild. If this is true, I doubt there would be a more stringent requirement for other properties.

I think that your requirements are pretty complex, and I don't believe that the current UK Insurance market can easily cater for your needs.    You probably need to seek advice from a solicitor, and probably appoint a broker to start investigating a new type of insurance.

It sounds that you:

-  Don't require any cover for anything less than total economic destruction of the property
-  Wish to insure for the market value of the building, not the rebuilding cost 

I'm assuming that:

-  Your co-leaseholders hold an identical viewpoint to yourself
-  Your co-leaseholders do not hold a mortgage (which will insist on standard type of buildings insurance).
-  You are certain of the legal position with regards to the non-reinstatement of the building (being grade listed)

If the building was seriously damaged (say £100,000 damage), this wont need to be repaired by insurance?  

If you and your co-leaseholders have significant financial means, collectively, you could look at some sort of self-insurance model or captive insurance facility.  

Let us know how you get on.

SC

 

huckster

I would suggest that you call a meeting of all flat owners to discuss.

Wonder how many would take the risk of not insuring for the full reinstatement cost?

The financial risk is probably going to be more than they would save in premiums. 

Very much doubt any underwriter is going to write a policy covering market value. But you might be able to negotiate having a large excess for every claim.

DullGreyGuy

huckster said:

Very much doubt any underwriter is going to write a policy covering market value. But you might be able to negotiate having a large excess for every claim.

I'm fairly sure you could find an underwriter at Lloyds who would agree to writing a fixed valuation (based on market value) but then you are talking manuscripted Lloyds types of premiums and the lowest I've ever seen for such a policy is circa £10,000 and most have at least one more zero. 

Smithcom said:

You probably need to seek advice from a solicitor, and probably appoint a broker to start investigating a new type of insurance.

Wouldnt be a new type of insurance, Lloyds would still class it as Property risk. It would be non-standard wording, which naturally Lloyds deals with hundreds of times a day, but will come with the price associated with bespoke work. 

Most brokers cannot directly access the Lloyds market so most likely you'd have a retail broker and a wholesale Lloyds broker involved each getting their margins and pushing the price up. 

neilogg

This will have to be progressed through the Management Company of owners. Advice is being sought from the Listed Building Owners Club. There are probably two possibilities:

• Carry our own risk, (collectively).

• Consult another broker who may be able to explore options such as insurance based on market value.

Thanks for the various comments. Signing off.