The withdrawal of Spanish insurer Ocaso from the UK residential property market brings additional pressure to an already difficult market. Peter Grocock, Public Sector Practice Leader at Aon – South West, Wales and Central, assesses the market and explains how public sector organisations can prepare for renewal.
Ocaso’s decision to withdraw from the UK residential property market, citing additional regulatory requirements resulting from Brexit, has sent ripples through the public sector insurance market. The exit of the Spanish insurer, which specialised in the social housing and council leaseholders’ block property markets, leaves its public sector policyholders facing a challenging renewal process.
As Ocaso won’t be renewing cover from 1 April 2022, public sector organisations face having to run tenders to appoint a new insurer, even though the number of players left in the market can be counted on one hand.
Conditions in the market are already tough. A combination of higher reinsurance rates claims inflation due to the increasing costs of labour and materials plus a history of large losses means further rate rises are expected.
Concerns remain around cladding following the tragic events relating to the Grenfell tower block in 2017. While initial focus was on the Aluminium Composite Material cladding, tests have highlighted the fact that a large number of buildings are clad in materials that may have been signed off at initial installation stage but are now deemed to be combustible in nature.
Escape of water is another problem area, with figures from Avid Insurance Services indicating that cumulative claims costs can often account for upwards of 65% of all incurred losses.
The pandemic has also contributed to losses. Avid reports an increase in average costs to settle claims on leasehold portfolios over the last 12 months, with this linked to factors such as the labour shortage and the rising cost of materials.
Winter risk management
Taking steps to improve risks will help at renewal. This is particularly the case with escape of water claims, where weather conditions during the winter months can increase the risk of burst pipes.
Providing individual leaseholders and tenants with leak prevention and mitigation guidance can reduce this risk and ensure that, where leaks occur, they are detected and dealt with quickly. Insurers can provide support in this area, for instance Avid has guidance that can be shared with individual leaseholders.
Where cladding is in place, insurers will expect public sector organisations to have a good understanding of the asset plus detailed information around the type of cladding, its combustibility rating and, if it is deemed to be combustible, what risk management steps are in place including any plans for its removal.
The fact that Ocaso’s withdrawal means that organisations will need to run a tender to appoint a new insurer adds to the pain created by the recent hard market. While this creates additional work – with the limited number of insurers in the market making the eventual result almost inevitable – there are ways to take some of the pain out of the process.
Starting early is essential. This will ensure that all options can be explored where necessary. It also means there’s plenty of time to collect all the necessary risk information. Insurers are taking a much more cautious approach to risk selection. They will be looking for full underwriting information including claims listings and analysis, construction details, risk management measures and valuation regimes.
Whether your residential property portfolio is currently insured by Ocaso or not, the challenging market means it’s essential to speak to your insurance broker as early as possible. Contact Peter Grocock at [email protected] to find out more about how Aon can help.