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What’s next for insurance on homes with cladding?

A government-backed insurance scheme like Flood Re might be on the cards but could take years to arrive

What’s next for insurance on homes with cladding?

New housing secretary Michael Gove is ‘looking afresh’ at the government’s support for leaseholders, and building insurance is reportedly a key area of interest.

Which? identified insurance bills as one of the five costs the scandal is piling on affected flat owners earlier this year. Some leaseholders have seen insurance bills climb over 1,000% after building safety issues were identified, while others have struggled to find any insurance at all.

According to the Guardian, Gove now is looking into measures that could cut the size of buildings insurance bills.

Here, we take a look at how the insurance industry is approaching the cladding scandal, as well as what leaseholders can do to attempt to keep their bills low. Sadly, though, there’s no guarantee this will be possible at this stage.


How cladding affects buildings insurance

Earlier this year, Which? research revealed huge increases in buildings insurance premiums for leaseholders living in unsafe flats.

Across 16 apartment blocks caught up in the cladding scandal, premiums had increased by an average of 500% between 2019 and 2020. One building was unable to find an insurer at all, leaving residents at risk of facing costs for any potential building damage, even unrelated to fire.

These bills, now sometimes thousands of pounds a year instead of hundreds, are part of the unexpected costs that pile up when a flat is found to be unsafe. And much like the costs of remediation and ‘waking watch’ fire wardens, they’re expected to be paid by leaseholders.

What is the government planning?

The short answer is, we don’t know. When Which? asked the newly named Department for Levelling Up, Housing and Communities (LUHC) about Gove’s plans to help leaseholders, it gave this response:

‘As a new minister in a new department, the Secretary of State is looking afresh at our work in this area to ensure we are doing everything we can to protect and support leaseholders.’

Still, other publications are reporting that Gove has taken an interest in insurance bills, even suggesting he has explored a scheme that would see the government underwriting home insurance in high-risk buildings until remediation work is completed.

This idea is reminiscent of Flood Re, the government-backed scheme that secures affordable insurance for homes at severe flood risk.

Insurers pay into Flood Re through a levy. Then, if they need to insure a customer whose home is at high risk of flooding, they can ‘cede’ flood cover for that customer to Flood Re, meaning the scheme will pay out for any flood-related claims that the customer makes.

It’s not unreasonable to think the government could do something similar around building safety. But there are downsides. Chief among them is that Flood Re took around five years to set up. Considering the urgency of the situation, with many leaseholders facing extreme financial and mental health strain at the hands of the crisis, campaigners argue this isn’t fast enough.

Giles Grover of Manchester Cladiators, told Which?: ‘When we relaunched our campaign last September, we asked the government to act as an insurer of last resort and underwrite insurance where premiums have soared.

‘It is costs such as insurance that we face right now that will bankrupt many before we can even think of the mind-boggling figures we are still being forced to pay for remediation – there may have recently been some positive noises on insurance from Michael Gove and a promise to look afresh at ways to help us with these exorbitant costs; however, we need more than words and promises – we need action and we need it now.’

Which? understands that the government has not formally approached the Association of British Insurers (ABI) about a potential Flood Re-style scheme.

But in a speech last week, ABI director of general insurance policy James Dalton said the organisation, which represents the insurance industry, is ‘ready to assist ministers and officials in the design and implementation of such a scheme if that is the path the government chooses to go down.’

An ABI spokesperson told Which?: ‘Our industry has a crucial role to play in driving much-needed change, and we are totally committed to working with the government and other stakeholders on these vital reforms to ensure residents and businesses get the safer homes and premises that they expect and deserve.’

Why are buildings insurance bills skyrocketing?

Some leaseholders are frustrated with insurers, who have in some cases hiked insurance costs on buildings they have insured at a lower rate for many years. But insurers insist that they have to set prices based on risk, and that they can’t ignore the findings of new EWS1 building safety inspections.

In some cases, buildings have struggled to find even a single insurer that will take them on. The ABI told Which? that it has had to help buildings that couldn’t find insurers in less than 10 instances, and that each of these buildings is now insured.

At the moment, despite some targeted government support, leaseholders themselves are facing remediation bills of up to £200,000 per flat. Remediation won’t be possible unless leaseholders can somehow find this money. Which in effect means sky-high insurance bills may be on the cards for years to come, unless a new approach – either to remediation funding or insurance – is taken.

What can leaseholders do about unaffordable insurance bills?

Unlike, say, car or travel insurance, leaseholders are unable to simply ‘shop around’ for better prices when it comes to buildings insurance. This is because they are not directly involved in the process of finding an insurer. That job falls with a building’s managing agent, which works for the freeholder.

Freeholders are responsible for securing insurance for their buildings, but they can (and do) pass the costs of paying for it onto leaseholders.

As a leaseholder, if you’re sent an eyebrow-raising insurance bill, you can challenge your managing agent to prove it has obtained and compared quotes from a range of insurers and chosen the most affordable option.

If you’re unhappy with the response, you can complain about your managing agent using the tips in our guide. However, there’s no guarantee this process would result in lower insurance charges.

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