Landlords Insurance Tips – reduce costs, minimise risk

By Neil Patterson, Partner of The Money Centre.

Remember; insurance companies have to make money too, but as a landlord if you understand how they price schemes and view risk you can maximise savings on your portfolio.

I have spent the last year researching the best priced schemes, cover and services for my colleagues and clients. For such a well established and mature industry the difference in price and cover is staggering.  It pays to understand how the insurers view the cost effectiveness of volume offset by perceived risk of property, tenancy types and claims history.

If an insurance company has the confidence of dealing with an administrator who has a long standing relationship and proven track record they will consider vastly discounted landlords insurance schemes based upon doing a volume of business to make it cost effective. The base cost of these schemes are often expressed as pounds per thousand, or pence per hundred of the rebuild cost of the property to be insured e.g. £1 per thousand pounds covered.

The scheme will be reviewed annually against income, costs and claims payouts to make sure the insurance company is making a profit for its share holders. This means that certain perceived risks such as past claims history, and tenancy types (asylum seekers, DSS and students) can be rated at a higher cost. It is possible though to place the lower risk majority of your portfolio onto the most cost effective scheme and seek a different policy that specialises in these areas to keep the average cost as low as possible.

Large portfolio landlords often seek to reduce the cost of cover by increasing their excess from a standard £100 to a higher amount on the basis that economies of scale make it possible to avoid making claims. If this is appropriate and you can afford to cover claims yourself out of cash flow or savings then this is worth discussing with insurers as substantial savings can be made by doing this. Fewer smaller cost claims and the reduced administration cost of dealing with these can then be passed on to landlords in the total premium.

Most insurance companies will cover leasehold flats where only contents and landlords liability insurance is required within a mixed portfolio, including buildings insurance.  However, it is very difficult to find an insurer who will cover only landlords contents and liabilities. This is because the premiums are very small and not normally cost effective for the administrative work required.  That said, some insurers will take the commercial view that it is better to provide a service to all landlords and hopefully build a relationship for future requirements.

It is therefore very important that your landlords insurance package has the flexibility to tailor make solutions based on your individual circumstances.

SOME LANDLORDS DON’T BUY INSURANCE IF THEY OWN FLATS

This is a dangerous strategy.  Whilst the freeholder will insure the building, they will not insure carpets, contents and landlords liabilities.  For example, if a tenant comes home, knocks your painter off his ladder, paint spills over the carpets and into the eyes of the tenant and the painter, who do you think they will sue and who will be expected to pay for the carpets?  For a few pounds a month it’s wise to consider passing such risks to an insurance company.

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