From our perspective, there can be little doubt that the UK delegated authority property market presents several interesting challenges for underwriters at the moment, with a number of these unsurprisingly related to COVID-19.
At TMHCC, we write a predominantly UK-focused residential book and write lead lines on a number of what would be considered non-standard or ‘hard to place’ risks. This is likely to be a testing year for large sections of the market from a risk perspective. 30 years-plus of experience has taught me, however, that non-standard risks demand non-standard expertise. When combined with bespoke products, such expertise can deliver excellent solutions to brokers and their clients.
Testing times for landlords
One area that the market will be watching closely in 2021 is the private landlord sector, where the pandemic has been a major issue.
A number of these landlords will have tenants in place who might be struggling financially given the difficult economic circumstances thrown up by the pandemic. The government brought in regulations last year, which stipulated that landlords are not allowed to evict during the current circumstances of Covid. These were recently updated; on 22 February 2021, the Public Health (Coronavirus) (Protection from Eviction) (England) (No 2) Regulations 2021 came into force, applying in England only.
The regulations, subject to some exemptions until the end of 31 March 2021, prevent attendance at a dwelling house for the purpose of delivering a notice of eviction, or executing a writ or warrant of possession. This has been good news for some tenants but less so for landlords. In all likelihood, there has been a backlog of rent that has been building up.
But this raises the question – if struggling tenants get evicted, where do these people live? Do they return to a family home, or council properties, if there are enough of them available? Do the landlords then sell their property, or do they leave it unoccupied? Will they be able to re-let at the same price? Will the tenant tell the landlord, mid-tenancy, that they are now unemployed?
Alive to risk
At present, no one is sure how this scenario will unravel when we get past this period of Covid, but one suggestion is that we will be left with many unoccupied properties.
Some underwriters will have to be the insurer while the landlord may be looking to sell, particularly if they have mortgages to pay, and some of them may even have some mortgage arrears. So as a market, we will need to be alive to that risk and that opportunity.
Equally, we have a duty to provide the continuation of the product and cater for a mid-term change in tenancy and be aware of changes in exposure.
This is not to suggest there are no other potential downsides here. One of the biggest risks that is unlikely to be covered by the current delegated authority market, certainly to the extent that it might have been previously, is for loss of rent from disease. We now expect that to be a set exclusion.
Holiday homes opportunity
Expect 2021 to offer risk opportunity for holiday homes. Why? As recently announced in the UK Budget, tax has been suspended on the first £500,000 of all property sales in England and Northern Ireland until 30 June 2021. Following this date, the relief is extended until the end of September, when the starting rate of stamp duty will be £250,000, then returning to the usual level of £125,000 after this.
In order to take advantage of the opportunity provided by lower stamp duty, there could be an increase in people buying a second home. This is potentially a real opportunity for the delegated authority sector but not necessarily an opportunity that will appeal to every insurer.
Yes, there will be the opportunity to insure people with second homes, but many of these second homes will almost certainly be used as holiday homes. This potentially means that they will be unoccupied for longer periods, which is not something that every insurer will have the requisite risk appetite for. For those who do have the appetite, there could be an uptick in that market related to some of their wealthier clients.
It won’t just be stamp duty that will see a focus on holiday homes this year, though. While the prospects for travel overseas remain unclear at present, holidays in the UK are set to resume from April as part of Prime Minister Boris Johnson's roadmap out of lockdown.
There will be a rise in so-called ‘staycations’ in the UK, given that if you book a holiday in the UK – although the Covid regulations could change – there is a much greater degree of certainty of it actually going ahead.
We will see the purchase of second homes increase in 2021, which will represent a real opportunity for underwriters such as ourselves as more people will seek to rent out their second homes as holiday homes, resulting in sufficient occupancy rates to make them an attractive risk.
Bespoke solutions for new growth areas
Another area of real growth in recent years, and one that continues to present opportunities for the market relates to the changing portfolio of landlord risk. It would be fair to say that ten years ago, the private landlord rental market was dominated by students and working tenants.
In recent years, there has been a development in which private landlords have more DSS tenants. Housing associations have been selling stock from their balance sheets to private landlords, and in return, having a guaranteed rental income for those private landlords. This action has been taken to raise some cash to invest in new-build housing stock for affordable housing. But this changing landlord dynamic has been a real growth area and continues to be a growing area, particularly in the inner cities.
Then you've got Airbnb-type risks with much more short-term lets, which have not been popular in the insurance market. Creating bespoke solutions for these new types of delegated authority risk is something that we've worked towards, particularly when major events are going on such as concerts and sporting events.
These short-term tenancies could be for two weeks at a time (e.g. the Wimbledon tennis Championships). At TMHCC, we cover those short-term lets as well as Airbnb type tenants.
During this unusual time of Covid-19, we expect less commuting and more working from home which may include visitors at private premises. You may also find employers offering temporary accommodation, owned by the business, to staff travelling long distances so that they have less time to commute.
We have to be customer-centric so that we adapt our policies to meet their needs. TMHCC is alive to those new requirements in 2021.
