Why are building insurance costs rising?

Your home

While you arrange your own contents insurance, it’s our responsibility to arrange building insurance for the homes we manage

Before recent increases in insurance premium, we’ve always been able to secure a competitive rate, with homeowners paying relatively low buildings insurance premiums through their service charge. However, the number of insurers who provide cover for the sector has reduced due to a change in risk appetite linked to rising claim costs and building safety requirements. In this article, we’ve explained why this has happened. 

Social housing insurers

Some insurers that previously provided insurance for social landlords have withdrawn from the market. Therefore, there is now less capacity to offer social landlords insurance for their buildings at competitive rates.

There has only ever been a limited number of insurers willing to cover social landlords. But over the last few years, we’ve seen some well-established insurers pull out the market. This is due to a number of reasons including the tragic Grenfell Tower fire, coronavirus pandemic, leaving the European Union and the recent war in Ukraine. The insurers who remain have less competition and can charge higher rates.

Building safety

New government legislation, which was put into place as part of the Building Safety Act 2022, has meant that tall buildings, over seven storeys in height, are being put into the spotlight. While the government has provided funding for fixing issues with cladding on tall buildings, that only covers a fraction of the work needed. This means remediation works are being carried out over a period of time, with the highest risk buildings being repaired first, which has led to higher premiums.

There are other factors which led to increased costs:

  • In some situations, insurers are asking for remediation works to be completed in addition to what is required by law. And until the works have been completed insurers are charging higher premiums.
  •  The impact of climate change, which increases the likelihood and severity of damage from extreme weather events.
  • Modern construction techniques means that buildings are less equipped able to resist damage from fires and floods, so the costs of repair may become disproportionate to the damage suffered.
  • The demand for labourers and materials is greater than the readily available supply which drives up repair costs and can increase the time for which alternative accommodation costs are incurred.
  • Reinsurance costs (we’ve explained more on this below)

What are reinsurance costs?

Reinsurance costs, which insurers pay to protect themselves from large losses, have significantly increased. Insurance companies can only pay out to a certain limit, so they arrange for reinsurance to step in if those limits are reached. The cost of reinsurance has increased across the market by around 50%. Insurers are also reinsuring at lower levels than previously, this means insurers are paying more for reinsurance, and these costs are being passed onto building owners, as the policy holders.

What does this mean for the future?

The insurance market is a commercial environment and constantly changes. We’re working closely with our colleagues in the G15 (a group of London’s largest housing associations) to identify common trends in insurer appetite so that that we can improve our presentation of risk asin order to attract more insurers to the market, which will we hope will make premiums cheaper in the future.

In the meantime, we regularly speak to insurance providers and brokers to review available options. This is to make sure we’re able to obtain suitable cover. 

More information

Visit our dedicated Money Matters website page for more information on how we can support you with increases to the cost of living.