Listed properties, the impact of inflation and risk of underinsurance

Authored by Tim Baxter, Head of Insurance Broker Development, Prestige Underwriting

Over 25 years of trading in the non-standard insurance sector has provided us with a robust understanding and experience in tailoring insurance solutions for residential homes with a Listed status, many of which often present more than one ‘beyond standard’ feature.  Providing the correct solution, both in terms of coverage and sums insured levels, is vital for buildings of a more complex nature and this is an area of particular focus and interest within our business at this time as we experience growth in our non-standard Home book.

How are listed buildings graded?

• Grade I buildings are of exceptional interest, only 2.5% of listed buildings are Grade I
• Grade II* buildings are particularly important buildings of more than special interest; 5.8% of listed buildings are Grade II
• Grade II buildings are of special interest; 91.7% of all listed buildings are in this class and it is the most likely grade of listing for a home owner.

The total number of listed buildings is not known, however, it is estimated that there are around 500,000 listed buildings on the National Heritage List for England NHLE.  Over the years we have seen some gentle shifts in our own book as far as proportions of Listed properties are concerned.  While Listed properties only represent around 5% of our wider account, almost 90% of these are Grade II with a much lower proportion of Grade I and Grade II*, supporting the national statistics above.

Listed & Claims

Years of underwriting Listed properties and facilitating claims settlement for those unfortunate enough to suffer damage has, perhaps unsurprisingly, taught us that the reinstatement costs and process associated with these properties are far higher and more delicate.  Over the past 3 years we are seeing the average claim cost in this segment increase by 160%.  In fact, the increased ‘burn cost’ for Listed properties is compounded by the current economic climate and the rate of inflation.  Repair costs, as you would imagine, have skyrocketed in recent years as construction materials costs in the UK continue to escalate, reaching a 40 year high based on the annual growth of the BCIS Materials Cost Index.  (https://www.rics.org/uk/news-insight/latest-news/news-opinion/construction-materials-cost-increases-reach-40-year-high/)

The risk of underinsurance with Listed properties…

We understand the Insurance needs of customers owning a Listed property and over time have developed a solution within our proposition that is offered through our established network of broker partners.  We see the impact on customers where the cost of Insurance is concerned and impact of inflation, particularly when looking at Listed properties.  We have also become more aware of the challenges when customers choose an aggregated channel for their insurance needs and in particular when offered a ‘notional’ or ‘blanket sum insured’ solution.  On the face of it these products can offer an extremely cost-effective proposition, however with the impact of inflation accelerating the level of sums insured required to cover reinstatement, customers can easily find themselves in a position of underinsurance. 

The risk of underinsurance for the policyholder - when the sum insured does not reflect the true reinstatement value of the property insured and the policy holder has inadequate insurance cover for their needs – is most paramount in the event of a claim.  This could significantly impact settlement ultimately leaving the customer exposed, severely in some cases, to costs needing to be met by themselves. 

The setting of an adequate sum insured level for a property is naturally vital.  Customers living in more traditional properties are often able to satisfy their requirements more easily utilising the array of products available in the market, whereas customers owning a Listed property have a number of additional considerations when ensuring the correct level of cover is in place and the sum insured requirement verses that of a traditional property, can be significantly different.  Whilst not essential, a survey can often be the best way to calculate an accurate reinstatement sum insured figure for older and, in particular, Listed properties.

We always recommend securing cover for a Listed home through a broker who understands the considerations when owning a Listed property and importantly the unique cover requirements that will ensure a customer, along with their property, are fully protected should the worst happen.