Insuring the future

The domestic property market is depressed. How is the commercial market faring, and how are you adapting your services as a company to changes in the property market place?

I agree that the Domestic Property Market is somewhat depressed, but the Commercial Property Market has changed considerably over the last few months.

In 2006/early 2007, many clients were taking advantage of the excellent prices available in the UK Market to sell commercial properties, and we saw a reasonable transfer of ownership from one client to another. Clients who had made purchases over the last few years, and had seen commercial property prices substantially increase took advantage of the high prices to sell some choice properties throughout the UK. This affected a number of our major clients. The market then changed and considerably hardened so that throughout the last 9 months of 2007, property prices depressed considerably making it unattractive for clients to sell. We have seen a marked current change in the attitude of clients with many of our clients now taking advantage of subdued prices in the commercial market, to once again, purchase assets in the UK. A number of clients have built up ‘a war chest’ of funds and, having waited out the difficult year that was 2007, have now started to look at some real bargains, once again buying UK assets with reasonable yields. It is certainly very much a buyer’s market in the UK and most of our clients are long term Investors in the UK.

We have not had to make any major changes to the way that we adapt to the services that we offer. We remain in tune with the Commercial and Residential Property Market in the UK and beyond, offering a complete remit of insurance services to our clients from the structural insurance for commercial and residential buildings, to Property Owners Liability covering injuries or accidents resulting from the fabric of the building, to loss of rent. We also provide a new unique policy to Reich called our “Ultra Product” which provides a whole package of additional non-structural covers such as Directors and Officers Liability Cover, Legal Expenses, General Office Covers incorporating Employers Liability and Public Liability, Professional Indemnity, etc. All our products are specifically developed with Property Investors in mind, and provide unique facilities for our Property Investor Clients.

The slowdown in the property market has seen investors looking to alternative opportunities in the UK. Give some examples of areas into which clients have diversified and explain what specific products you are looking to make available to them.

It is true that in 2007, the Property Investors market diversified, but the diversification, as far as we were concerned, was more towards looking at investment opportunities outside the UK than towards non-property investments. The World has certainly become much smaller over the last few years, and UK property investors have diversified across Europe, in the first instance concentrating heavily on the German market. There have been unbelievable opportunities in Germany, particularly in Berlin and in much of the former East Germany.

Clients have seen major possibilities of investment, and yields over the last few years have been much stronger in Germany than in the UK. There has also been a substantial flow of easy credit over the last few years, before the credit crunch, which has enabled potential clients, both new and old, to obtain the funds necessary to purchase properties abroad. We have thus developed a number of specific products, aimed at UK and European Investors buying outside Britain, working closely with major leading insurers.

In addition to Germany, our investment portfolio for our clients now stretches to include Switzerland, Austria, Poland, and even the United States/The Caribbean. Basically, as far as we are concerned, we will look to insure property assets for our clients anywhere in the World. We even have some clients purchasing in Shanghai.

It is estimated the UK earthquake will cost insurers more than £40m. Describe briefly how you will deal with claims relating to this unique occurrence and how will your expertise, knowledge and services be utilised.

Claims is an area in which we excel. We have a substantial, dedicated claims department, and I myself am a former director of a loss adjusting company, previously one of the UK’s largest. I qualified as an associate of the Chartered Institute of Loss Adjusters in March 1992 and became a fellow in 1997. I do not think there are many senior partners of insurance brokers who are qualified loss adjusters, and I am certain that my claims knowledge brings a major advantage to this business.

As far as we are concerned, Claims is our ‘shop window’, and how we deal with claims has a direct bearing on the amount of business placed with us.

For Property Investors, we want to make sure that we have a streamlined procedure in place, and whilst the UK earthquakes of recent times may well have cost insurers a substantial sum of money, the amounts involved are still very small compared to the likes of flooding, and general winter claims. The insurance industry is particularly geared up for major natural catastrophes and flood claims. As far as we are concerned, we offer a 24/7 emergency claims service with our major Insurer Partners.

We have an arrangement whereby there are two preferred loss adjusters who are pre-nominated across our whole portfolio of business with various insurers, regardless of whether or not the preferred adjusters are on each of the individual insurance companies’ panels. We have an arrangement with both firms of loss adjusters, so that when a loss occurs, we can appoint the adjusters directly, and they give service guarantees to attend site within 24 hours for any emergencies. This applies worldwide, regardless of where the loss occurs.

That is not where it ends as far as Reich is concerned, in that we maintain a very close liaison with the loss adjusters and have a direct involvement in the settlement of claims. We also have our own branded policy wording for property investors with our major insurance company partners.

The branded wording includes substantial additional benefits on cover. We have taken issues, which have occurred over the last 10 years on claims, and have made sure that our policy wording is broad enough to meet many of the problems which we have encountered.

In our opinion, our clients can sleep easy in the knowledge that where a claim occurs, they are certainly not on their own, and unlike most insurance brokers, we will guide our clients, until the settlement cheque has been received. We will get involved where there is a total loss, in particular, to make sure that the client receives a beneficial cash settlement, if they wish to proceed on this basis rather than reinstate the building.

Where reinstatement is required, again, we will liaise with the loss adjusters until completion. This will include negotiation of the rent claim.

Very rarely do clients of Reich Insurance Brokers need to go to the expense of instructing a loss assessor to act on their behalf. It is all part of the service as far as we are concerned.

Insurance rates are anticipated to rise by between 5-10 percent this year. What level of ‘disaster’ might see this increase significantly and what can insurers do to mitigate such a rise (if anything), either by way of advice or changes in their working practice?

It is true that Insurers are looking to increase their rates by 5-10 percent this year. However, this needs to be seen in perspective. In the last two and a half years, the insurance market has been extremely ‘soft’. As we all know, the insurance market is cyclical, and rates are at the bottom of the cycle.

Indeed, I am hard pressed to remember a time when rates have dropped as much as they have over the last few years. We are now about to enter a harder market, and an increase of between 5 and 10 percent on premium rates for 2008, is being hoped for by the major Insurers.

However, this will certainly be nowhere near sufficient to bring rates back to where they were three years ago. It needs to be remembered that last year’s floods caused substantial damage, far above what insurance companies where expecting, and whilst we have not had many major winter claims so far for 2007/2008, insurers will be paying out billions of pounds once the flood claims have been quantified.

Remember, flood damage is long tail, and many of the larger flood claims have still not been settled and so insurers do not yet know exactly how much they are going to end up paying out.

Tenants will be expecting some form of increase to rates this year, but we at Reich Insurance Brokers maintain a close liaison with our partner insurers to ensure that the effects of any rate increases are minimised. Additionally, the market is still very competitive and it remains to be seen whether Insurers will be able to carry any rate increases at all.

Simon Taylor ACII, FCILA
Partner
Reich Insurance Brokers