One in four residential landlords have inadequate or no insurance protection, that’s according to recent research carried out by AXA, one of the UK’s largest insurance companies.
AXA have warned that while buy-to-let has boomed, hundreds of thousands of landlords are leaving themselves and their tenants wide-open to risks because they have failed to realise the importance of making sure they have the correct insurance policy.
AXA believes that a large proportion of those with the wrong kind of insurance are “accidental landlords” – people who rent out their own home when they can’t sell or when they move away with work and intend to return at some time in the future.
Data from AXA’s research shows that out of the total population of residential landlords in the UK around one-quarter have the wrong types, or no insurance at all, and that around three-quarters of those have only standard household cover.
What landlords need is a landlord policy which covers specific letting risks; otherwise landlords are leaving themselves vulnerable to having any claim they make turned down.
What many landlords don’t realise is that the biggest risk to them is from third party accident claims (injury or deaths) to tenants or their visitors. Claims for these events can run into hundreds of thousands if not millions of pounds, so without adequate cover private landlords risk bankruptcy.
An insurance contract is, in the legal jargon, one of Uberrima fides, a Latin phrase meaning of the “utmost good faith”. In simple terms it means that if you do not disclose all material facts, at the time of taking out the policy, or when things change, the insurer is under no obligation to accept a claim.
Similarly on insured value; if you under value your property for replacement cost, the claim will be apportioned. This means, for example, if you insure a building which cost you £500k for £300k replacement cost, and rebuilding cost after a total loss comes to £600k, including site clearance, all professionals’ fees etc, then the pay-out would be £300k as you were 50 per cent under insured.
The research showed that of those who had bought the wrong insurance, 20 per cent had previously lived at the address themselves and simply renewed the existing home insurance cover when they moved out, believing the cover to be adequate.
43 per cent of respondents were unaware of the existence of landlord cover, 28 per cent thought landlord and residential cover were one and the same thing, and 11 per cent thought the landlord option was too expensive, so they simply bought a residential policy instead.
AXA discovered that nearly three quarters of landlords in this position (73 per cent) had less than £1,000 set aside for emergencies while 18 per cent had no savings at all, leaving them financially exposed should their tenant default on the rent or their insurer turn down a claim because the wrong insurance is in place.
Statistics show that 5 per cent of all landlords will claim on their insurance in any given year.
However, AXA claim that it’s not just the insurance that is being neglected by some landlords. Their research also exposed other areas of weakness where landlords are leaving themselves wide-open to problems, and their tenants unprotected:
– only half (53 per cent) had a tenancy agreement
– only 27 per cent had a current inventory
– of the 54 per cent which had taken a deposit, less than half of these were being protected in one of the approved schemes.
Despite the fact that the tenancy deposit protection legislation has been in place since April 2007, there is still a proportion of landlords who are not aware of the importance of following the rules: to protect the deposit in an approved scheme within 30 days of taking it, to serve on the tenant the statutory (213) notice (with proof of service) both when the tenancy commences, and on renewal, including when the tenancy enters a period phase)
Failing to comply with the tenancy deposit legislation means that landlords are open to a fine of up to 3 times the deposit, plus they will be unable to evict using the s21 process if they need to do this.
Darrell Sansom, managing director at AXA Business Insurance says:
“While many of these people may well have never intended to become landlords and possibly it is something they would rather not have to think about, the consequences of not sorting out some of the basic admin and putting some core protection in place could make it a much bigger headache for them than it already is.
“As an industry, insurers need to take some responsibility to ensure that the right questions are asked when customers are buying insurance. And consumers need to be made aware of the pitfalls of buying the wrong cover.
“Someone else living in your property can present a very different insurance risk than you living there yourself – insurance products are designed and priced to match these risks so it’s important you get the right one.”
As the UK property market has experience housing shortages and unprecedented price increases over recent years, the phenomenon of the “accidental landlord” has grown rapidly in total numbers.
AXA thinks that around 70 per cent of all residential landlords rent just one property and up to one-third of these are “accidental landlords”.
Landlord Insurance – www.landlordzone.co.uk/insurance/landlord-insurance
Occupiers Liability – www.landlordzone.co.uk/information/occupiers-liability
— LandlordZONE (@LandlordZONE) September 10, 2014