Leasehold flats and shared ownership properties: Buildings insurance premium increase

Frequently asked questions

Read the answers to frequently asked questions about the buildings insurance premium increase for leasehold flats and shared ownership properties.

Why has the insurance premium increased so much this year?

The total cost of insurance claims made by leaseholders for damage to property over the last two years is expected to significantly exceed the total payments that insurers have received.

Insurers are expecting that for every £1 they receive in premiums; they will potentially have to pay out £1.50 in claim payments. Because of this the insurer has said that a significant increase in premium is necessary, as the current pricing is simply no longer sustainable. They consider this to be a fair increase given current market conditions and that this would be priced much higher if they were quoting for this as a new contract.

I have not made a claim, so why has my premium increased?

The buildings insurance cover is arranged on a ‘block basis’, which means that the policy covers around 2,000 flats that were originally sold under the ‘Right to Buy’ scheme, together with a small number of ‘shared ownership’ flats and houses. One of the basic principles of insurance is that the losses of the few are paid for by the premiums of the many.

Why can I not arrange my own buildings insurance cover?

Under the terms of the leases, the council is required to arrange buildings insurance cover for flats that were originally sold under the ‘Right to Buy’ scheme, together with cover for the ‘shared ownership’ flats and houses. The premiums are collected from leaseholders as part of the service charge payments, or as part of the rent for shared ownership properties.

There is no provision within the leases to allow for leaseholders/shared ownership leaseholders to make their own insurance arrangements.

Why can you not change insurers or get a better deal?

Our insurance brokers have advised that there are very limited options available in the insurance market for this type of cover. In 2022, when we last did a ‘competitive tender exercise’ to find a buildings insurer, only three insurers responded:

• Protector Insurance were awarded the contract, which saw premiums reduce by approximately 10% compared with the 2021-22 premium. The previous insurer withdrew from the market.
• One is reported as not currently responding to tenders.
• The other had withdrawn from the market but is tentatively re-entering it and is very selective in terms of what it is prepared to quote on.

Unfortunately, the current overall claims experience is challenging. It would not present an attractive risk to obtain a lower premium via an alternative insurance provider. Our current insurer has advised that their quote would be priced much higher if they were quoting for this as a new contract.

Why are there not more insurers to choose from?

Nationally, there are challenges in terms of the limited number of insurers who are prepared to offer this type of cover and, in some cases, with landlords being able to obtain residential leasehold buildings insurance. This type of cover is becoming increasingly unattractive to insurers due to the cost of claims against the premium income.

The government is aware of the challenges for councils and other housing providers with obtaining residential leasehold buildings insurance. The LGA (Local Government Association) are working with the insurance industry, council officers, and others to seek to develop solutions and actions. We will continue to liaise with the council’s insurance broker to monitor the insurance market. 

Can the premium increase not be spread across a longer period?

Discussions were held with the insurer seeking to moderate the size of the increase and/or for it to at least be spread over more than one year. However, they were not prepared to reduce either the size or timing of the increase given that it is driven by the cost of claims they are receiving.

What other options were looked at to reduce the size of the premium increase?

The option of adding a policy excess to the cover in return for a reduction in the premium was explored. This would mean that any loss within the excess would need to be met by leaseholders. It was clear that for this to have any meaningful impact on the overall premium, the excess level would need to be very significant. This would effectively leave leaseholders uninsured for anything other than a very large loss, which would not be acceptable.

Can I expect a similar increase at next year’s renewal?

The insurer has commented that, as matters stand, they hope not to increase rates further at the next annual renewal, but this would depend on the claims they receive between now and then.