News & Media

SURVEYING THE INSURANCE RISK

Editorial:
Sarah Brailey & Graham Hardman
6th June 2019

Sarah Brailey from THB Risk Solutions and Graham Hardman from CNA Hardy discuss the UK property market insurance sector and the issues affecting surveyors in the runup to Brexit.

THB have seen that the UK housing market got off to a slow start in January, with only a slight hope of a near-term improvement, surveyors have reported. Inquiries from buyers, new property listings and house sales all fell last month, according to the Royal Institution of Chartered Surveyors (RICS).

The Office for National Statistics and the Land Registry also reported that annual house price growth was at its weakest level in more than five years in December 2018.

Across the UK, property values increased by 2.5% in the year to December – the lowest yearly rate since 2013. London and the South East continue to display the weakest growth, followed by the South West and East Anglia.

Sarah Brailey, head of professional risks at THB stated: “In the near-term, surveyors across the UK sense scant prospect of a turnaround, as concerns over the potential impact of Brexit, alongside affordability limitations across the general economy, continue to cause buyers and sellers to put off making a decision.”

Simon Rubinsohn, RICS chief economist, said: “Resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the South East, where affordability remains stretched and the tax changes are most penal, remains to be seen.”

Surveyor’s insurance – challenging times

Graham Hardman, senior underwriter at CNA Hardy “Our own research from our latest Risk & Confidence Survey reveals that business leaders in the Professional Services sector are clearly rattled by the Political and Economic uncertainties. Brexit, and the lack of clarity  means these businesses are cautious with their investment decisions with 48% stating Brexit is having a severe, heavy impact on their business strategy.”

Sarah continued: “The combination of squeezed incomes, economic slowdown (globally, not just in the UK) and political uncertainty has created what we call a ‘minefield of uncertainty’ for surveyors. Yes, we have seen market fluctuations before, and some would argue that in some regions that market was vastly over-inflated and due for a correction. But for surveyors trying to get adequate cover against claims in an uncertain market, these are trying times.”

One barometer of change in the insurance sector is RICS own Assigned Risk Pool which is described as ‘a facility for actively trading Regulated Firms who find themselves unable to obtain insurance in the normal market’.

RICS has appointed a panel which sits between six and nine days a year to provide short-term professional indemnity insurance (PII) to those regulated member firms that are unable to obtain PII on the open insurance market. It is particularly useful for surveyors who have been the subject of heavy claims in the past.

Upon its inception in 1996, it was seen as a final refuge for surveyors suffering from claims against negligent surveys. But since the crash of 2008 applications to the ARP have soared to more than 90 percent, a position which still holds today.

“That is a parlous state for the surveying industry to be in,” commented Graham Hardman, “where caution and hesitancy are effectively stagnating the housing market. Surveyors are wary of writing surveys that they perceive are open to litigation at a later stage; and the nervousness of foreign property investors in the run up to Brexit has seen a flatlining of the market. Some surveyors are now leaving the marketplace altogether as the perception of risk and high losses are just too dire to contemplate.”

Surveyors – Risk and Reward

So, what can be done to mitigate against this? Sarah Brailey suggests “A well-managed surveying firm with careful, prudent finances, diligent operations and attention to detail should not be fearful of the market. Residential surveys and home buyer reports (HBRs) should be water tight. It may sound obvious but exercising good business and pragmatic risk management skills may help reduce the impact of litigation. Constantly evaluate your approach to risk. And review, review, review your procedures.”

“Finally, involve your insurance brokers at every opportunity and use their wealth of market experience. In a tough market we need all the help we can get. As specialist brokers serving the surveying industry THB can anticipate the challenges involved and ensure clients receive resilient cover and competitive pricing with guidance at every stage in their business.”