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Be prepared – winter is coming

One weather company has predicted the coldest winter in 50 years, but the Met Office are saying their long-range predictions look very different. Of course, winter weather is notoriously hard to predict so as usual, no one is sure what the future holds.

What we do know for sure is that winter can bring a set of property hazards, which from an insurance perspective, is always good to be aware of in advance. So, here are some winter risk management tips to keep the property claims away this year.

 Be prepared

  • Ensure you know the layout and routes of all water, gas and electricity services within the premises and that this information is recorded and available
  • Know the location of all main and subsidiary isolation-valves and ensure they are fully operational – regular exercising of the valves will ensure easier isolation
  • Research the details of reliable local plumbing contractors and keep their contact details available

Prevent burst pipes (before anything happens)

  • Protect pipes and tanks with good quality lagging to BS6700
  • Repair dripping taps & faulty ball valves as they can cause waste pipes to freeze
  • For unoccupied buildings or those with a history of freezing incidents, leave the heating set at a low level, or drain all equipment that is susceptible to condensation or freezing
  • Install a frost stat set at a minimum of 4ᵒC to central heating and check it is working correctly
  • Arrange for the premises to be inspected at least daily in periods of very cold weather
  • Service heating systems at least annually
  • Ensure all boilers are safeguarded against freezing – particularly drain and condensate lines. Drain down all idle boilers

Minimise damage (should anything happen)

  • Isolate water at stop cock. Turn on cold taps to drain the system as quickly as possible.
  • Turn off the central heating
  • Protect or remove any vulnerable contents or equipment that may be damaged.
  • Never use naked flames to thaw ice plugged pipes and equipment
  • ‘Ice dams’ can be created on the edges of roofs, especially tiled roofs by the continual thawing and refreezing of melting snow. Water may ‘back up’ up the roof getting under the tiles and leaking into the building. To help prevent this keep drains open and free of ice in a safe manner. Engage specialist companies to perform this if necessary
  • Monitor the amount of snow on roofs and arrange for it to be cleared before accumulations reach unsafe levels

Sprinkler systems

  • For all sprinkler systems engage sprinkler contractors to make systems ‘winter safe’
  • Especially vulnerable are systems protecting outdoor areas or cold areas (attics etc), valve chambers, and pump rooms
  • Heating should always be maintained at or above 4 degrees C. Exposed pipe work should be trace heated and lagged, and this must be routinely inspected and maintained

If you need any further information or advice on this subject don’t hesitate to contact us.

UK commercial property values fall

Commercial property values dropped in September but that doesn’t affect the rebuilding cost of a property.

You may have seen recently in the press that according to the latest CBRE Monthly Index capital values across UK commercial property fell -0.4% in September 2019, and rental values and total returns were flat. 

Any correction in real estate prices caused by poor performance and the sluggish nature of the economy shouldn’t lead you to believe that your property building reinstatement cost is unlikely to have gone up.

In the third quarter of 2019, UK commercial property capital values decreased -0.9% overall, the fourth successive negative quarter and the weakest of 2019 so far. 

For example currently Index-linking is hovering between 2.5% – 4.5% in both the residential and commercial sectors.

A building’s market value is not relevant for insurance purposes and its use for building sum insured is a frequent source of underinsurance.

What is underinsurance
Property insurance policy wordings typically include a ‘condition of average’ clause. When underinsurance is present, this condition enables claims settlements to still be made under the policy but reduced in proportion to the level of underinsurance.
e.g. if a policyholder undervalues their total buildings value by 50%, and therefore only pays 50% of the premium that should have been due, they can only expect to receive 50% of a buildings claim’s total value.

It is estimated that around 80% of commercial properties could be underinsured!

What to consider when setting the value
The amount of money it will cost to rebuild, or reinstate, a property depends on such factors as its construction, style, quality, condition and location, as well as considerations such as building regulations and the cost of labour. In some parts of the country, and with certain types of property it can be that the market value is only a very small percentage of a building’s rebuild cost.
Buildings sums insured need to reflect the full cost of reinstating a building following a total loss. In addition to materials and labour, this includes all associated costs such as demolition, debris removal, planning and professional fees.
Each building will have features that can significantly alter a reinstatement cost, such as difficult site access, period features or specialist construction techniques.

Many property owners’ policies will not apply an average clause if professional valuations are undertaken at least every three years by a RICS qualified surveyor.

A qualified surveyor will have the expertise to identify and quantify these factors, and one should always be engaged when establishing sums insured for insurance purposes.

The benefits of having an up-to-date valuation

  • Ensures your Buildings Sum Insured is adequate.
  • Significantly reduces the risk of an underinsurance provision being applied to reduce the amount payable in the event of a claim.
  • Enables the insurer or the loss adjuster to immediately focus on the claim rather than any underinsurance issue which might delay the repair process and lead to potential unrecoverable increased costs.
  • Provides good corporate governance for any commercial business, helping to protect the rights of directors, employees and shareholders in the event of any insured major disaster.
  • Allows buildings of historic or environmental value to be restored without being lost to the wider community due to a lack of funds.
  • Provides peace of mind to all parties of the insurance contract.

If you need more information about obtaining a RICS valuation or want to know how Arlington Insurance Services can help you with this our contact details can be found here.

Environmental Liability Insurance

Collecting water samples for the analysis of its pollution near to an industrial complex

What is environmental insurance?
Also known as Environmental Impairment Liability (EIL), this insurance covers claims for personal injury, damage to property, clean-up expenses, legal expenses or fines that have been incurred as a result of pollution.

Why do you need to ensure against the risk of causing damage to the environment?
Since 2009, the EU Environmental Liability Directive (ELD) has aimed to encourage businesses to take more ownership of the risks they may pose to the environment. Businesses are now liable financially for the cost of any damage their pollutants have caused. Under the European directive, the business must investigate the cause of the contamination and pay for remedial action.
Should contamination be as a result of individuals in that company being negligent in their duties, it can be considered an offence which – if it comes to court – could result in up to two years’ imprisonment, and/or an unlimited fine. It doesn’t matter, either, whether it is pollution caused by contractors. A company can still be liable for contamination events caused by work done by contractors they’ve hired.

Who might need this cover?
Potential buyers of environmental insurance include any business that buys or sells land, uses raw materials, produces waste or undertakes groundwork has an environmental exposure.
For Real Estate this would include such issues as historical contamination/legacy issues taken on by contract and Tenants actions resulting in landlord being liable for clean-up costs (including waste crime).

To read more on this subject click here for our information sheet on Environmental Liability Insurance

Directors and Officers Insurance (D&O) or Management Liability Insurance

What is Directors and Officers (D&O) Insurance?

It offers financial protection to individuals who are directors, partners or officers (managers/ supervisors) of a company for the cost of compensation and claims made against them for alleged wrongful acts occurring during the course of running the business.
It is sometimes referred to under “Management Liability Insurance” which often includes D&O Insurance as well as the company/entity also being protected, and/or Employment Practices Liability, more details of which are described over under “Associated covers”.

Click here to find out –

Why you might need the cover?

How might a claim arise?

D&O claims examples

Associated covers

Who to contact at Arlington?

Hard times ahead in a hard Professional Indemnity market

As many of our property and construction clients will be aware from press articles and communications with their professional bodies, the cheap PI rates experienced in the “soft” UK insurance market for over a decade have come to an end and professionals and contractors are now feeling the impact of increased PI premiums and in some cases more restrictive cover.

What has caused this? 

Lloyd’s of London conducted a review of its worst performing lines of business in 2018 with PI insurance being the second worst performing class (USA property business was the worst). In 2017 Lloyd’s Syndicates incurred £272m in claims but only collected £170m in premium for Architects, Engineers and construction risks; a situation which is unsustainable.

Several Lloyd’s Syndicates and specialist insurers have withdrawn from the PI market during 2018 and 2019 and no new entrants have taken their place, so there is reduced capacity.

The Grenfell Tower fire has led to concerns about the construction industry in general, both in terms of building regulations and fire safety, which has led to greater regulatory scrutiny. PI insurers have reported difficulties in being able to pass claims for construction projects down the line to designers and consultants. This has led to an increasing number of insurers scaling back on capacity or withdrawing from the PI insurance market entirely. Consequently we are now in a “hard” insurance market.

What effects are we seeing? 

  • Insurers increasing their rates with the result of significant increases in PI premium levels as the costs are being passed to businesses.
  • Insurers being more diligent and proactive with their risk assessment before quoting or offering renewal of PI cover.
  • Punitive terms are being imposed, such as reduced limits of indemnity, higher excesses, restrictions in cover or cover exclusions.
  • In some cases, insurers are declining to offer renewal terms in the event of significant risk exposure or where there are existing claims or notifications.
  • Slower response times from insurers as insurers are inundated because more firms are looking for alternative PI cover in the hope they can find more competitive renewal premiums.

Insurers may now be declining to quote risks or professions where they would have been eager to provide terms in previous years.  2019 renewal premiums in some cases may be up by 25% or more. This can be hard to understand, particularly for businesses which have not had any claims and where turnover has remained stable.  Many property related professionals (not just Architects and Design & Construct risks) may experience challenges in renewing their PI insurance at terms that they consider are suitable or affordable. 

Which professions is this affecting?

The following professions have so far experienced the greatest impact:

  • Architects
  • Design and Construct
  • Surveyors (particularly those involved in mortgage/lending valuations)
  • Building and Engineering Contractors
  • Property Managers
  • Commercial Investment Agents

However, it is anticipated that premium increases will filter through across all professions during the second half of 2019 and there is likely to be a continued impact on availability, cost and capacity over the next few years.

How will this impact and what can be done?

  • There may be delays in insurers response times and unexpected premium increases and/or restrictions in cover.
  • Don’t assume that renewal of your PI insurance will be a simple formality and that terms will remain similar to last year. The low premiums of recent years are a thing of the past.
  • Allow plenty of time before renewal to prepare. As a minimum submit your renewal presentation at least 3-4 weeks prior to your renewal date.
  • Provide a comprehensive insight and detailed information into the running of your business together with details of new projects, changes to activities and any variations to your directors and partners.
  • Keep the information clear, concise and consistent. Make your renewal presentation with care and demonstrate that you have a clear vision of the outlook for the future and where the firm is going.

For more information regarding your PI needs, please contact Verena Cole or Anna Lloyd at our Bristol office on 0117 387 8880/8881.