Block of Flats Insurance Glossary of Terms
Understanding the Declared Value
The Declared Value is a figure that represents the rebuild cost of a block of flats or property converted into flats, including garages, outbuildings, walls, car parking, electronic gates, etc., if it was completely destroyed. It is the cost of the materials and labour required to reinstate the property to its previous condition. The Declared Value should also include an allowance for the cost of debris removal, architects, and other professional fees that could be incurred in rebuilding. This figure is sometimes referred to as the Reinstatement Value or Rebuild Cost.
Importance of Accurate Declared Value
It is vital that the block management company ensures the flats are insured for the correct rebuilding cost, as this value can increase each year depending on rising costs of materials and labour, as well as new building regulations. Most policies specifically designed for blocks of flats make provision for inflationary increases each year, with the Declared Value automatically index-linked by the annual percentage shown in the Building Cost Information Service (BCIS) Index provided by the Royal Institute of Chartered Surveyors (RICS). However, if the starting figure is wrong, this can lead to underinsurance.
Consequences of Underinsurance
In the event of a claim on the block insurance policy, the insurer or its appointed loss adjuster may check to see that the Declared Value is adequate. If it is not, they may rely upon a clause within the insurance policy called Average, Average Condition, or Underinsurance. This could mean that if the property is insured for 50% of its correct rebuilding cost, the insurer only pays 50% of the claimed amount. This can apply to a total loss (e.g. destruction by fire) or a partial loss (e.g. damage caused by a leak). The clause or condition of the block of flats insurance policy may vary between insurers.
Calculating the Building Sum Insured
Most policies specifically designed for blocks of flats make provision for inflationary increases each year. The Declared Value is automatically index-linked by the annual percentage shown in the Building Cost Information Service (BCIS) Index, which is provided by the Royal Institute of Chartered Surveyors (RICS). This ensures the Building Sum Insured remains more than adequate to cover the rebuilding cost, even if it increases over time due to inflation.
Rebuilding Cost Assessments
Calculating the rebuild cost for a property can be very different from the market value. It is generally thought that the management company should get the property valued by a building’s surveyor/valuer at least every five years, unless it is completely confident the current figure is correct. This assessment should consider the removal of debris from the site, architects and other professionals’ fees, and the cost of labour and materials to complete the works.
Terrorism Cover for Block of Flats
Insurance policies for individual houses typically include cover for damage or loss caused by an Act of Terrorism. However, block of flats insurance is classed as commercial property, and Terrorism cover is often excluded. This additional cover can be purchased, but it comes with an extra cost. The residential property management team should carefully consider whether the terrorism cover is necessary, which may be determined by the lease terms, mortgage company requirements, or the property’s location.
Securing comprehensive insurance protection is crucial for block of flats owners and management companies. While standard block of flats insurance policies may not include Terrorism cover, it is an important consideration, especially for properties situated in high-risk areas. Weighing the potential risks and the additional cost of this cover can help management teams make an informed decision to ensure their building and occupants are adequately protected.
Employers’ Liability Insurance
Employers’ Liability Insurance protects the insured against claims made by an employee who is injured during the course of carrying out their work for the employer. A person can be considered an employee even without a formal contract of employment in place, such as occasional casual labour paid for from petty cash (e.g. cleaner or gardener). Directors and officers of the management company or Right to Manage company could also be deemed employees in certain circumstances, despite generally being unpaid volunteers.
Who is Considered an Employee?
Employers’ Liability Insurance covers individuals who are considered employees, even if they do not have a formal contract of employment. This includes casual labourers, such as cleaners or gardeners, as well as directors and officers of the management company or Right to Manage company, even if they are unpaid volunteers.
Legal Requirement for Employers’ Liability Insurance
Employers’ Liability Insurance is compulsory, and the block management company or Right to Manage company must arrange this cover, as they have a legal duty to provide a safe environment for employees, visitors, contractors, and any other person legally on the premises.
Property Owners’ Liability
The block management company or Right to Manage company has a legal duty of care to provide a safe environment for visitors and any other person legally on the premises, be they visitors, contractors, or delivery people. If it fails in this duty of care, it could be held legally liable for any injury to that person (or damage to their property), resulting in costs and damages being awarded against it.
Slip and Trip Claims
Property owners’ liability insurance provides protection against the costs associated with third-party claims, such as slips and trips. Slips and trips are quite a common claim these days, helped to an extent by the compensation culture that has emerged and the rise of no-win, no-fee legal services. Insurers try to settle such third-party claims before they reach the courts.
Definition of Buildings for Insurance Purposes
Buildings refer to permanent structures used for residential, commercial, or industrial purposes. These structures are typically affixed to the land and include the following components:
Main Structure: The primary framework or shell of the building, including walls, floors, roofs, and foundations.
Permanent Fixtures and Fittings: Elements permanently attached to the building, such as plumbing systems, electrical wiring, central heating systems, air conditioning units, built-in kitchen cabinets, and bathroom fixtures.
Outbuildings and Structures: Additional structures on the insured property, such as garages, sheds, greenhouses, and boundary walls or fences, provided they are specified in the insurance policy.
Permanent Outdoor Fixtures: Features such as patios, driveways, walkways, decking, and swimming pools, as well as permanently installed outdoor lighting and irrigation systems.
Services and Installations: Systems and installations necessary for the building’s functionality, including but not limited to water supply systems, drainage and sewage systems, gas lines, and electrical supply systems.
Exclusions:
Certain items and areas are typically excluded from the definition of buildings for insurance purposes, including:
Temporary structures (e.g., tents, caravans)
Land itself and landscaping (e.g., lawns, trees, plants)
Movable items within the building (these may be covered under contents insurance)
Maintenance and cleaning services
Considerations for Insurance Coverage
Usage: The purpose for which the building is used (residential, commercial, industrial) can affect the insurance terms and premiums.
Construction Type: The materials and construction methods used can influence the coverage, particularly concerning fire resistance and susceptibility to damage.
Location: Geographic location impacts risk assessment for natural disasters, crime rates, and other hazards.
Security and Safety Features: Features like security systems, fire alarms, and sprinkler systems can affect coverage terms and discounts.
Communal content cover
Communal content cover is a type of insurance that protects shared items and property within communal or shared living spaces. This coverage is commonly associated with properties that have multiple occupants, such as apartment buildings, student housing, or retirement communities, where certain areas and their contents are collectively owned or used by all residents.
Here’s a detailed breakdown of what communal content cover typically includes:
What It Covers:
Shared Areas: This includes furniture, fixtures, and fittings in common areas like hallways, lobbies, lounges, laundry rooms, and recreational areas.
Communal Equipment: Coverage for shared equipment such as boilers, communal washing machines, gym equipment, and other items used by all residents.
Landlord’s Property: If the property is rented, it covers items provided by the landlord for communal use.
Maintenance and Repair: Insurance for damage to communal property due to events like fire, theft, vandalism, water damage, and other specified risks.
Who Needs It:
Property Management Companies: Entities managing residential buildings or complexes with shared spaces.
Housing Associations: Organizations managing multiple rental properties with communal areas.
Condominium Associations: Bodies responsible for maintaining common areas in condo buildings.
Student Housing Providers: Companies or institutions offering shared living spaces for students.
Retirement Communities: Facilities providing communal living arrangements for seniors.
Benefits:
Financial Protection: Ensures that the cost of repairing or replacing communal items is covered in the event of damage or loss.
Peace of Mind: Residents can have confidence that shared spaces and items are protected.
Compliance: Helps property managers and owners comply with regulations and lease agreements regarding the maintenance of communal areas.
Exclusions:
Personal Belongings: Typically, personal items of residents are not covered; separate personal contents insurance is required for these.
Intentional Damage: Damage caused deliberately by residents or their guests may not be covered.
Normal Wear and Tear: Standard depreciation or wear and tear of items over time is usually excluded from coverage.
Communal content cover is crucial for ensuring that the financial burden of replacing or repairing shared property does not fall disproportionately on individual residents or property managers. It helps maintain the quality and functionality of shared spaces, contributing to a better living environment for all occupants.
Block of flats insurance
The definition of ‘buildings’ under a block of flats insurance policy includes permanent fixtures and fittings in the communal areas and inside the individual flats (e.g. bathroom and kitchen fitted units). Many block of flats insurance policies will automatically provide cover for communal contents in common areas, but normally only for a fairly low limit or a “standard” amount, e.g. £5,000. Management companies should check to ensure there is cover and that the sum insured for communal contents is sufficient.
Block of flats insurance policies are not designed to cover leaseholders’ or tenants’ personal property; they should arrange their own contents cover for this. The block of flats insurance policy provides cover for the communal contents in the common areas, but management companies should ensure the sum insured is adequate.
Did you know that a single block of flats insurance policy can provide cover for up to 1,000 individual residential units? This staggering scale highlights the importance of understanding the key terms and concepts related to block of flats insurance, which is crucial for landlords, management companies, and property owners to ensure they have adequate and appropriate coverage for their apartment buildings.
Block of flats insurance policies provide comprehensive cover for apartment buildings, offering protection against risks like fire, theft, and liability claims. This glossary aims to explain the key terms and concepts related to block of flats insurance, covering topics such as the declared value, building sum insured, terrorism cover, employers’ liability, property owners’ liability, and communal contents cover. Understanding these terms is crucial for landlords, management companies, and property owners to ensure they have adequate and appropriate insurance coverage for their block of flats.
Key Takeaways
Block of flats insurance policies offer comprehensive cover for apartment buildings, protecting against risks like fire, theft, and liability claims.
Understanding key terms such as declared value, building sum insured, and communal contents cover is crucial for ensuring adequate coverage.
Landlords, management companies, and property owners must familiarise themselves with these concepts to secure appropriate insurance for their block of flats.
Specialist insurance brokers can provide tailored quotes and advice to help manage block insurance policies effectively.
Regular assessments of the rebuilding cost and inflation provisions are important to avoid underinsurance.
Managing Block Insurance Policies
The responsibility for arranging and managing the block of flats insurance policy can vary depending on whether you are the freeholder or leaseholder of the flat. If you are the leaseholder, the freeholder should take care of the buildings insurance for the whole building, but it’s always worth checking your lease agreement for confirmation. If you jointly own the freehold with other leaseholders, you are collectively responsible for ensuring the whole building is insured.
Role of Management Companies
If a management company has been appointed to be in charge of maintaining the services of the flat block, the buildings insurance premium would be paid by the management company or managing agent through the service charges paid by the individual flat owners. The management company is responsible for managing all aspects of the block, including insurance, maintenance repairs, utilities, and the daily upkeep of communal areas.
Right to Manage Companies
A Right to Manage (RTM) company gives the leaseholders the statutory rights to legally manage their property from the landlord. The company is set up where the servicing of the building is managed by the leaseholders instead of a managing agent. The Right to Manage was introduced via the Commonhold and Leasehold Reform Act 2002 and can be an efficient way for leaseholders to take control of managing their block of flats.
Conclusion
In conclusion, block of flats insurance policies provide comprehensive cover for apartment buildings, offering protection against a range of risks. Understanding the key terms and concepts, such as the declared value, building sum insured, terrorism cover, employers’ liability, and property owners’ liability, is crucial for landlords, management companies, and property owners to ensure they have adequate and appropriate insurance coverage for their block of flats.
By working with specialist insurance brokers, they can obtain tailored quotes and advice to manage their block insurance policies effectively. This helps to safeguard the property, mitigate potential liabilities, and provide peace of mind for those responsible for the management and maintenance of the building.
Ultimately, comprehensive block of flats insurance is essential for landlords, management companies, and property owners to protect their valuable assets and safeguard the wellbeing of occupants, visitors, and employees. By staying informed and working with industry experts, they can ensure their block of flats is adequately covered against a wide range of risks.
FAQ
What is the Declared Value in a block of flats insurance policy?
The Declared Value represents the rebuild cost of the block of flats, including garages, outbuildings, walls, car parking, electronic gates, etc., if it was completely destroyed. It covers the cost of materials, labour, debris removal, and professional fees required to reinstate the property.
Why is it important to ensure the Declared Value is accurate?
If the Declared Value is not accurate, it can lead to underinsurance. In the event of a claim, the insurer may apply an ‘Average’ clause, meaning they only pay a proportion of the claim based on the level of underinsurance.
How is the Building Sum Insured kept up-to-date in a block of flats insurance policy?
Most block of flats policies automatically index-link the Declared Value to the annual percentage change in the Building Cost Information Service (BCIS) Index, provided by the Royal Institute of Chartered Surveyors (RICS). This ensures the Building Sum Insured remains adequate to cover the rebuilding cost.
Is terrorism cover included in a standard block of flats insurance policy?
No, terrorism cover is typically excluded from block of flats insurance policies, as they are classed as commercial properties. Terrorism cover can be added as an optional extra, but there is an additional cost.
Who is considered an ’employee’ under the Employers’ Liability Insurance for a block of flats?
Employees can include the cleaner, gardener, or even directors/officers of the management company, even if they are unpaid volunteers. Employers’ Liability Insurance is a legal requirement for the block management company.
What does Property Owners’ Liability insurance cover for a block of flats?
Property Owners’ Liability insurance provides protection against the costs associated with third-party claims, such as slip and trip accidents in the communal areas. The management company has a duty of care to maintain a safe environment for visitors, contractors, and other people legally on the premises.
What is covered under the ‘buildings’ definition in a block of flats insurance policy?
The ‘buildings’ definition typically includes permanent fixtures and fittings in the communal areas and individual flats, such as fitted kitchen and bathroom units. Many policies also automatically provide cover for communal contents in common areas, but the sum insured should be checked.
How can I obtain a quote for block of flats insurance?
You can fill out a quick online form to get a quote for block of flats insurance. Specialist insurance brokers who understand the complexities of block of flats policies can provide tailored quotes and advice to ensure you get the right cover at the right price.
Who is responsible for arranging the block of flats insurance policy?
The responsibility can vary depending on whether you are the freeholder or leaseholder. If you are the leaseholder, the freeholder should arrange the buildings insurance. If you jointly own the freehold with other leaseholders, you are collectively responsible. A management company may also be appointed to manage the insurance and other aspects of the block.
