Blocks of Flats Insurance
A block will commonly be insured under a single buildings policy covering the structure and common parts, even though it is owned in pieces. The freeholder, the residents' management company or the right to manage company buys a single buildings policy covering every flat and the common parts, and recovers the cost through the service charge.
That arrangement creates duties the individual leaseholder does not have. The lease usually specifies what must be insured, sometimes names the perils, and occasionally requires the leaseholders to be noted on the policy. The insurance arrangements should be checked against the lease requirements to ensure the required cover and limits are maintained.
The buildings sum insured is a common area of concern. It must be a reinstatement cost for the entire building including common parts, plant, external works and professional fees, and for anything beyond a small converted house that means a formal reinstatement cost assessment rather than an estimate carried forward each year.
We can advise freeholders, RMC and RTM directors and managing agents on how a block should be insured, what the lease obliges you to arrange, and the cover directors need for the decisions they take on behalf of other owners.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Water travelling between flats
In a block one leak is rarely one claim. Water from a third floor bathroom reaches the flats below and the common stairwell, and each affected leaseholder has their own contents claim while the block policy deals with the structure. Frequency, not severity, is what drives a block's claims record.
Underinsurance of the whole structure
Where the sum insured has been indexed rather than assessed, the figure drifts below the true rebuild cost of a building that includes foundations, roof, lifts, communal plant, boundary walls and the professional fees to rebuild it. Average is then applied and every leaseholder shares the shortfall.
Communal areas and the people in them
Stairwells, lifts, bin stores, car parks and gardens belong to the block, and so does liability for them. A fall on an unlit communal stair or a resident injured by a gate mechanism is a claim against the freeholder or the management company rather than any individual flat.
Cladding and external wall systems
Since 2017 insurers have asked far more about external wall construction, balconies and compartmentation. A block with combustible cladding, or without the documentation to show what the walls are made of, faces a much smaller pool of insurers, higher premiums and sometimes a requirement for a waking watch.
Decisions taken by resident directors
RMC and RTM directors are volunteers who are nonetheless company directors. Disputes over service charge apportionment, major works consultation under section 20, or a decision to appoint a particular contractor can become personal claims against them.
The cover we arrange
We arrange insurance around the property, its use, construction, occupancy and ownership structure. The cover available will depend on the individual risk and the terms offered by insurers.
Buildings, whole block
The entire structure on a reinstatement basis: all flats, common parts, plant, outbuildings, boundary walls and the professional fees and debris removal needed to rebuild. Written in the name of the freeholder, RMC or RTM company, with leaseholders' interests noted where the lease requires it.
- Every flat and all common parts
- Professional fees and debris removal
- Lifts, pumps, gates and communal plant
- Leaseholders noted where the lease requires
Property owners liability
Liability arising from ownership and management of the common parts. £5m is common for a block and larger developments are often written at £10m, particularly where there is underground parking or a lift.
- Falls on communal stairs and paths
- Injury from gates, doors and lifts
- Damage to neighbouring property
- Limits typically £5m or £10m
Directors and officers liability
For the directors of an RMC or RTM company. Covers the cost of defending decisions taken in running the block, which is the exposure most volunteer directors do not realise they carry personally.
- Defence of decisions taken as a director
- Service charge and section 20 disputes
- Cover for the company as well as individuals
- Suits volunteer resident directors
Terrorism
Excluded from most commercial property policies and bought back separately. Lenders frequently require it for blocks in city centres, and the lease may oblige the company to arrange it whether or not the residents want it.
- Excluded as standard, added by extension
- Often required by lenders
- Priced on location and sum insured
- Check what the lease obliges you to buy
Engineering inspection
Lifts and certain plant require statutory thorough examination. The inspection contract is separate from the damage cover, and a block with a lift needs both arranged and evidenced.
- Statutory inspection of lifts
- Pressure systems and plant where present
- Inspection is separate from damage cover
- Reports retained for the managing agent
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Number of flats, number of storeys and the year the block was built
- A reinstatement cost assessment, its date and who carried it out
- External wall construction, any cladding, and whether an EWS1 or equivalent exists
- Whether the block is purpose built or a conversion, and whether any commercial unit sits within it
- Occupancy split: owner occupiers, private lets, social housing, students, short lets
- Presence of lifts, communal boilers, car parks, gates and their maintenance contracts
- Fire safety arrangements: alarms, emergency lighting, compartmentation, dry or wet risers
- Claims over the last five years, escape of water in particular
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
Sum insured and the assessment behind it
The reinstatement figure drives the premium. A current professional assessment can also improve terms in itself, because it removes the insurer's doubt about underinsurance on a building they cannot easily inspect.
External walls and fire safety
Cladding and compartmentation now move a block's premium more than almost anything else. Blocks above eighteen metres, or with combustible materials in the wall build up, face a restricted market and materially higher rates until remediation is documented.
Claims frequency
Blocks are rated heavily on how often they claim rather than how much. A run of escape of water claims across several flats will affect renewal terms even where each individual claim was modest.
Occupancy mix
A block of owner occupiers is rated more favourably than one that is largely let, and short term holiday letting within a block is treated as a different risk again because of the turnover of people who do not know the building.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Average, where the block is underinsured
If the sum insured is materially below the true reinstatement cost, most insurers reduce a claim in the same proportion. On a block that is felt by every leaseholder at once, and it is a common cause of a shortfall.
Leaseholders' contents and improvements
The block policy insures the structure and usually the original fixtures. A leaseholder's own kitchen upgrade, flooring or possessions are theirs to insure, and the boundary between structure and improvement is set by the lease rather than by the policy.
Defective workmanship and inherent defect
Damage caused by faulty design, materials or workmanship is generally excluded. On a newer block that can push a problem towards the NHBC or equivalent warranty and the developer, rather than the insurer.
Unoccupied flats within the block
Individual empty flats can still trigger conditions, especially where several are void at once or where a flat has been empty long term. The insurer will usually want to know and may impose inspection requirements.
Common questions
Who should the policy be in the name of?
Whoever has the obligation under the lease to insure, which is usually the freeholder, the residents' management company or the right to manage company. Where leaseholders have an interest the lease often requires them to be noted, and a managing agent normally arranges it on the company's behalf rather than in their own name.
Do leaseholders still need their own insurance?
Yes, for their contents, their own improvements and usually their liability as an occupier. Some also take cover for loss of rent if they let the flat out, and for the excess on the block policy where the lease passes it down.
How often should the reinstatement cost be reassessed?
Most insurers expect a formal assessment every three years, with indexation between. After a period of sharp construction cost inflation, indexation alone has tended to lag the real cost of rebuilding.
Do we need terrorism cover?
It is not compulsory, but it is excluded from the standard policy and lenders often insist on it. The lease may also require the company to arrange it, in which case the decision is not really the directors' to make.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
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Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.