Insurance should never derail a property sale and yet many agents we work with remark that it is often the last thing anyone thinks about when trying to get a transaction over the line (writes George Seatter). Typically, it gets to the day of exchange when the buyer realises they haven’t sorted out their cover, leaving everyone scrambling around trying to get it arranged in time. Not only is the purchase in jeopardy, but the entire chain.
This is a new and quietly escalating issue in London’s prime property market. While climate-related risk is widely discussed, the immediate impact on the £2m-plus luxury homes market is not. Insurance placement is rapidly becoming one of the biggest deal blockers in luxury property transactions, with chains now stalling – not due to surveys or finance, but because buyers can’t secure insurance cover.
As more insurers cede risks to the government-backed Flood Re scheme, several high-value areas, including Kensington, Chelsea and riverside SW postcodes, are already sliding into a zone where obtaining insurance is prohibitively expensive or, in some cases, impossible. Second homes are especially vulnerable due to strict underwriting and the fact that they sit outside Flood Re.
Several high-value areas are already sliding into a zone where obtaining insurance is prohibitively expensive or, in some cases, impossible
Consequently, we’re often asked to rescue a transaction at the eleventh hour. Earlier this year an estate agent called me in desperation at 9am: he was selling a £2m-plus Thames riverside property to a buyer who planned to use it as a second home. Despite the property being rated low flood risk, three insurance brokers they’d approached all failed to secure a policy. The main issue was that it was built in 2019, and was a second home, so was ineligible for Flood Re on both counts. Without insurance, exchange couldn’t happen that day, which meant the two transactions higher up the chain were also at risk of collapse.
We moved quickly and by 4pm had assessed the property’s flood risk profile, leveraged our specialist market access to secure comprehensive cover (including flood), and delivered a policy that was acceptable to the buyer, their solicitor and lender. The sale proceeded, thanks to our speed, certainty and specialist expertise.
Historic surface-water flood issues often problems when obtaining insurance in areas such as Kensington, Chelsea, Chiswick and Richmond. The damage and disruption from July 2021’s flash floods resulted in insurance and reinsurance losses estimated to have totalled £281 million, so is it any wonder that insurers are increasingly wary?
Luxury design is unintentionally increasing this risk
It’s not just a prime property’s age or location either. Luxury design is unintentionally increasing this risk, with hard landscaping and sweeping driveways accelerating run-off into lower ground floors and subterranean basements house high-value contents (think gyms, games rooms and art collections). It all exacerbates the potential loss and cost of a claim.
The aim of Flood Re – due to end in 2039 – was admirable: to make it possible for most properties to get cover, and has made a difference. However, some London basements are now seen as such a high risk that insurers won’t cover them at all, even if they’ve never flooded. This means more and more properties ceded to Flood Re, arguably when they don’t need to be. What’s more, Flood Re doesn’t cover properties built after 2009, nor second homes, impacting newer builds, pieds-à-terre and investment properties.
The long-term market impacts could see buyers turn away from properties in these high-risk areas, while sellers could be forced to drop the asking price to secure a deal. Agents need to be more pro-active and work with insurance specialists to find solutions earlier on in the process. Working with a specialist insurance broker comes with significant benefits, combining the expert knowledge to handle complex insurance risks with the market access and insurer relationships to secure bespoke cover that standard brokers often can’t.
In fact, agents can involve insurance experts as early as the listing stage to minimise risk. Steps such as reviewing the seller’s insurance policy, in particular for flooding and subsidence cover, and if there is a high excess in place, which could deter some buyers, all pre-empt problems. Otherwise, the buyer will need to tackle this after making an offer but before exchanging – far more stressful with the potential to sabotage the transaction entirely.
With all the challenges facing the property market, getting the deal done in front of you is more important than ever. Don’t let insurance – or rather the lack of it – derail the transaction.
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