Landlord insurance has been regarded as a safe haven for insurers given stability from continued demand for rented property. Yet pressures from claims costs, high commission rates and fierce competition have threatened the market’s profitability. Further, current economic conditions and trends, such as internet shopping, have changed the shape of the property market upon which the line depends.
Features and benefits
- Strategize the shape of your book and targeted business, with a detailed view of current property market conditions broken down by segment
- Benchmark your performance against the health, growth and profitability of the whole landlord insurance market
- Build resilience to sources of high claims costs, prepare for emerging risks in the market and seek opportunities from these
Highlights
Premium and commission rates will come under increasing pressure as landlords face difficulties transferring costs, be it due to properties lying vacant or struggling tenants challenging service fees.
The residential landlord insurance market can expect growth in written business as an increasing share of households are rented, however it is expected to continue experiencing high claims costs.
The commercial landlord insurance market can expect little growth from new business as development pipelines for commercial property - retail, office and industrial - are sluggish while financing for activity is hesitant over low demand.
Your key questions answered
- Which property segments are growing and what mix of these are likely to be considered ‘good risk’ in the next few years?
- What key threats and issues should insurers prepare against as profit margins come under increasing pressure?
- What pressures are stakeholders along the distribution chain, from insurer to tenant, facing and how will this affect commission and premium rates?
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Report Details:
No. of Pages: 78
Published: July 2012
Price Single user license: US $ 5250 | Price Corporate User License: US $ 13125
Table Of contents
OVERVIEWCatalyst
Summary
EXECUTIVE SUMMARY
The landlord insurance market is regarded as stable and attractive
Gross written premiums are expected to grow very slightly for this "safe haven" market in 2012
Premium rates are expected to remain stubbornly soft as competition in the market intensifies
Rates will come under pressure as landlords face difficulties transferring costs
Escape of water is accounting for a growing portion of claims costs from residential landlords
Growing numbers of vacant commercial properties are raising book exposure to arson and vandalism
An increasing share of households are privately rented
16.5% of households were privately rented in 2010/11
Landlords are adding to their property portfolios
The development of privately owned homes has slowed in recent years
Commercial construction activity and new development pipelines have declined
New construction work in Q1 2012 was 8.3% lower than for the same period in 2011
The gap between prime and secondary commercial property is growing
The rate of unoccupied retail property is at an all-time high
Prime office property is in short supply due to limited development
Uncertain demand has led to limited financing for speculative industrial space development
Brokers dominate the distribution of residential and commercial landlord insurance
Brokers account for over 90% of market distribution
Landlord insurance distribution can involve a complex chain
Commission rates can vary strongly depending on the landlord's service philosophy
Direct business has limited potential by business size and is not considered a growth channel
Aviva is named top insurer by market share by insurers and surveyed brokers
Aviva, AXA, and Zurich are regarded by interviewed experts as the market leaders by GWP
Aviva was named as the insurer through which most brokers place landlord insurance business
Profitability in the landlord insurance market will come under increased pressure
The market will continue to experience soft rates, high commission fees, and increasing claims costs
THE MARKET LANDSCAPE
Introduction
The residential and commercial landlord insurance market
The landlord insurance market is worth an estimated £2.25bn
Gross written premiums are expected to grow slightly in 2012 in a market regarded as stable and attractive
Premium rates are expected to remain stubbornly soft as competition in the market intensifies
The gap between prime and secondary commercial property is growing
Rates will come under pressure as landlords face difficulties transferring costs
Insurers are looking to shift the balance of business towards commercial landlord
A high loss ratio resulted in a COR of 105.9% in 2010 for commercial property insurance
Commercial property loss ratio reached 61.0% in 2010
Escape of water is accounting for a growing portion of claims costs from residential landlords
Growing numbers of vacant commercial properties are raising book exposure to arson and vandalism
ABI commercial property insurance data reveal a slight decline in claims costs
ABI domestic property insurance data highlight a 2.4% increase in claims costs
The rented residential property market
An increasing share of households are privately rented
Buy-to-let lending is accounting for a growing share of the mortgage market
The demand for rented property is high and growing
Landlords are adding to their property portfolios
The number of new landlords is growing
More buy-to-let mortgage products and providers are becoming available
Achievable rents are rising but more tenants are struggling with payment
54.8% of letting agencies report more tenants than properties available
The development of privately owned homes has slowed in recent years
The commercial property sector
The value of the UK commercial property market is estimated to be £561bn
Around three-fifths of commercial property was rented in 2011
High vacancy rates are a critical issue for commercial landlords and insurers
Insurance and pension funds are the largest commercial property investors
Financial conditions have led UK businesses to suffer
Occupier demand is fragile, threatening rent value
Landlords are struggling to maintain long-term tenants
Construction and new development pipelines have declined
The commercial sector is made up of sub-segments
Retail is the largest commercial property sector by value
The gap between prime and secondary commercial property is growing
The retail property sector
Consumer confidence remains low
Unoccupied property rates are at an all-time high
Increasing use of Internet shopping and out-of-town shopping are changing the face of the retail sector
The development pipeline for retail space has been lackluster
The office property sector
Prime office property is in short supply due to limited development
The industrial property sector
Uncertain demand has led to limited financing for speculative developments of large units
THE DISTRIBUTION LANDSCAPE
Introduction
Brokers dominate the distribution of residential and commercial landlord insurance
Distribution varies depending on size and complexity
Brokers account for over 90% of market distribution
94% of brokers trade landlord insurance
Small and medium-sized business is increasingly being e-traded
The efficiencies delivered by e-trading will drive its usage in the landlord insurance market
Residential and commercial landlord products are available on marketplace portals
Commission rates are particularly high due to a number of players in the chain, including the landlord
Landlord insurance distribution can involve a long and complex chain
Brokers have cemented their position and expertise in market, drawn by high commission rates
Commission rates can vary strongly depending on the landlord's service philosophy
Ruling on commission disclosure could have a significant impact on distribution dynamics
Small landlord insurance is available through direct, aggregator, and bank channels
Direct business has limited potential by business size and is not considered a growth channel
A number of aggregators offer landlord insurance products
Non-advice channels may lead residential landlords to wrongly purchase personal lines insurance
COMPETITIVE DYNAMICS
Introduction
Aviva was named top insurer by market share by insurers and surveyed brokers
Aviva, AXA, and Zurich are regarded by interviewed experts as the market leaders by GWP
Aviva was named as the insurer through which most brokers place landlord insurance business
Insurers are developing multi-channel approaches to better target market segments
Aviva has launched a property owners' product on PowerPlace
AXA's multi-channel strategy includes a landlord insurance product in its e-traded "simple" range
Zurich has reorganized its property owner proposition into five key market groupings
New entrants to the market, or into new segments within it, have driven competition
Ecclesiastical has entered the wider landlord insurance market, bringing experience as a heritage specialist
Mitsui has a new focus in landlord insurance having placed its commercial motor book into run-off
Large portfolio owners' business is concentrated in a small number of key relationships
Very few medium to large business customers are brand new to the market
Global brokers control large client business placement
THE PRODUCT
Introduction
Asset protection
Landlord insurance premiums reflect property rebuild costs
Contents insurance
Legal protection
Property owners' liability
Revenue protection
Business interruption and loss of rent
Unoccupied properties
Vacant property cover
FUTURE DECODED
Introduction
Profit margins are expected to come under increasing pressure in 2012
The market will continue to experience soft rates, high commission fees, and increasing claims costs
Portfolio management will be increasingly critical for insurers
GWP for the landlord insurance market is expected to plateau in 2013 ahead of a return to growth from 2015
Residential landlord market business will grow, but claims costs will continue to be high
Rented property will continue to account for a growing share of households
The retail landlord market will continue to endure low consumer confidence and vacant lots
Retail property faces a tough climate with an increasingly two-tier market
Office property development outside London will continue to be slow
Demand for office property will remain fragile, leading to hesitation in new development financing
The development of new industrial property will remain sluggish, limiting new business
Financing for speculative developments is unlikely to rise in the near future
APPENDIX
Definitions
Brokers
Direct
Gross premium
Prime and secondary property
Reported year combined operating ratio
Small and medium-sized enterprises (SMEs)
Two-tier market
Written premiums
Sources
Methodology
Top 10 commercial property insurers by GWP in 2010
Datamonitor's 2011 Commercial Broker Insurance Survey
Further reading
Ask the analyst
Disclaimer
List Of Tables
Table: Brokers' perceptions of percentage change in premiums in the last year for property owners' insurance (%), 2011
Table: UK commercial property claims costs (£m), 2006–11
Table: UK domestic property claims costs (£m), 2006–11
Table: UK residential households, by form of tenure (millions), 2000–11
Table: UK residential households, share of tenure type (%), 2000–11
Table: Buy-to-let gross advances, by quarter (£m), Q1 2007 to Q1 2012
Table: Private enterprise property construction starts and completions, 2000–01 to 2011–12
Table: Commercial market supply, demand and expected rental levels (% balance), 2009 to Q1 2012
Table: New private industrial and private commercial construction work, by quarter (£m), Q1 2007 to Q1 2012
Table: Property owners' insurance products available on imarket and PowerPlace portals
Table: Top 10 UK commercial property insurance groups, by GWP (£m) and market share (%), 2009–10
Table: Commercial brokers in Datamonitor's insurance survey, by type, 2011
Table: Commercial brokers in Datamonitor's insurance survey, by annual premium income, 2011
List Of Figures
Figure: One third of brokers observed no change in landlord insurance premium rates in 2011
Figure: Private enterprise housing construction starts declined in 2011–12
Figure: 21.4% of surveyed brokers place their landlord insurance with Aviva
Figure: Profitability in the landlord insurance market will come under increased pressure
Figure: One third of brokers observed no change in landlord insurance premium rates in 2011
Figure: Commercial property COR rose above 100% in 2010
Figure: ABI commercial property insurance data reveal a slight decline in claims costs
Figure: ABI domestic property insurance data highlight a 2.4% increase in claims costs
Figure: Residential property market overview
Figure: Buy-to-let mortgages accounted for 11% of total advances made, by value, in Q1 2012
Figure: Private enterprise housing construction starts declined in 2011–12
Figure: Commercial property market overview
Figure: New development activity in both private industrial and private commercial property has declined
Figure: Retail accounts for over one third of the commercial property market by value
Figure: Retail property market overview
Figure: Office property market overview
Figure: Industrial property market overview
Figure: 93.6% of all brokers offer landlord insurance
Figure: Aggregators offer a range of landlord products from various insurers
Figure: 21.4% of surveyed brokers place their landlord insurance with Aviva
Figure: Profitability in the landlord insurance market will come under increased pressure
Figure: Landlord insurance GWP is expected to plateau ahead of an improved economy from 2015
Figure: Residential landlord market business will grow, but claims costs will continue to be high
Figure: The retail landlord market will continue to endure low consumer confidence and vacant lots
Figure: Office property development outside London will continue to be slow
Figure: The development of new industrial property will remain sluggish, limiting new business
OVERVIEWCatalyst
Summary
EXECUTIVE SUMMARY
The landlord insurance market is regarded as stable and attractive
Gross written premiums are expected to grow very slightly for this "safe haven" market in 2012
Premium rates are expected to remain stubbornly soft as competition in the market intensifies
Rates will come under pressure as landlords face difficulties transferring costs
Escape of water is accounting for a growing portion of claims costs from residential landlords
Growing numbers of vacant commercial properties are raising book exposure to arson and vandalism
An increasing share of households are privately rented
16.5% of households were privately rented in 2010/11
Landlords are adding to their property portfolios
The development of privately owned homes has slowed in recent years
Commercial construction activity and new development pipelines have declined
New construction work in Q1 2012 was 8.3% lower than for the same period in 2011
The gap between prime and secondary commercial property is growing
The rate of unoccupied retail property is at an all-time high
Prime office property is in short supply due to limited development
Uncertain demand has led to limited financing for speculative industrial space development
Brokers dominate the distribution of residential and commercial landlord insurance
Brokers account for over 90% of market distribution
Landlord insurance distribution can involve a complex chain
Commission rates can vary strongly depending on the landlord's service philosophy
Direct business has limited potential by business size and is not considered a growth channel
Aviva is named top insurer by market share by insurers and surveyed brokers
Aviva, AXA, and Zurich are regarded by interviewed experts as the market leaders by GWP
Aviva was named as the insurer through which most brokers place landlord insurance business
Profitability in the landlord insurance market will come under increased pressure
The market will continue to experience soft rates, high commission fees, and increasing claims costs
THE MARKET LANDSCAPE
Introduction
The residential and commercial landlord insurance market
The landlord insurance market is worth an estimated £2.25bn
Gross written premiums are expected to grow slightly in 2012 in a market regarded as stable and attractive
Premium rates are expected to remain stubbornly soft as competition in the market intensifies
The gap between prime and secondary commercial property is growing
Rates will come under pressure as landlords face difficulties transferring costs
Insurers are looking to shift the balance of business towards commercial landlord
A high loss ratio resulted in a COR of 105.9% in 2010 for commercial property insurance
Commercial property loss ratio reached 61.0% in 2010
Escape of water is accounting for a growing portion of claims costs from residential landlords
Growing numbers of vacant commercial properties are raising book exposure to arson and vandalism
ABI commercial property insurance data reveal a slight decline in claims costs
ABI domestic property insurance data highlight a 2.4% increase in claims costs
The rented residential property market
An increasing share of households are privately rented
Buy-to-let lending is accounting for a growing share of the mortgage market
The demand for rented property is high and growing
Landlords are adding to their property portfolios
The number of new landlords is growing
More buy-to-let mortgage products and providers are becoming available
Achievable rents are rising but more tenants are struggling with payment
54.8% of letting agencies report more tenants than properties available
The development of privately owned homes has slowed in recent years
The commercial property sector
The value of the UK commercial property market is estimated to be £561bn
Around three-fifths of commercial property was rented in 2011
High vacancy rates are a critical issue for commercial landlords and insurers
Insurance and pension funds are the largest commercial property investors
Financial conditions have led UK businesses to suffer
Occupier demand is fragile, threatening rent value
Landlords are struggling to maintain long-term tenants
Construction and new development pipelines have declined
The commercial sector is made up of sub-segments
Retail is the largest commercial property sector by value
The gap between prime and secondary commercial property is growing
The retail property sector
Consumer confidence remains low
Unoccupied property rates are at an all-time high
Increasing use of Internet shopping and out-of-town shopping are changing the face of the retail sector
The development pipeline for retail space has been lackluster
The office property sector
Prime office property is in short supply due to limited development
The industrial property sector
Uncertain demand has led to limited financing for speculative developments of large units
THE DISTRIBUTION LANDSCAPE
Introduction
Brokers dominate the distribution of residential and commercial landlord insurance
Distribution varies depending on size and complexity
Brokers account for over 90% of market distribution
94% of brokers trade landlord insurance
Small and medium-sized business is increasingly being e-traded
The efficiencies delivered by e-trading will drive its usage in the landlord insurance market
Residential and commercial landlord products are available on marketplace portals
Commission rates are particularly high due to a number of players in the chain, including the landlord
Landlord insurance distribution can involve a long and complex chain
Brokers have cemented their position and expertise in market, drawn by high commission rates
Commission rates can vary strongly depending on the landlord's service philosophy
Ruling on commission disclosure could have a significant impact on distribution dynamics
Small landlord insurance is available through direct, aggregator, and bank channels
Direct business has limited potential by business size and is not considered a growth channel
A number of aggregators offer landlord insurance products
Non-advice channels may lead residential landlords to wrongly purchase personal lines insurance
COMPETITIVE DYNAMICS
Introduction
Aviva was named top insurer by market share by insurers and surveyed brokers
Aviva, AXA, and Zurich are regarded by interviewed experts as the market leaders by GWP
Aviva was named as the insurer through which most brokers place landlord insurance business
Insurers are developing multi-channel approaches to better target market segments
Aviva has launched a property owners' product on PowerPlace
AXA's multi-channel strategy includes a landlord insurance product in its e-traded "simple" range
Zurich has reorganized its property owner proposition into five key market groupings
New entrants to the market, or into new segments within it, have driven competition
Ecclesiastical has entered the wider landlord insurance market, bringing experience as a heritage specialist
Mitsui has a new focus in landlord insurance having placed its commercial motor book into run-off
Large portfolio owners' business is concentrated in a small number of key relationships
Very few medium to large business customers are brand new to the market
Global brokers control large client business placement
THE PRODUCT
Introduction
Asset protection
Landlord insurance premiums reflect property rebuild costs
Contents insurance
Legal protection
Property owners' liability
Revenue protection
Business interruption and loss of rent
Unoccupied properties
Vacant property cover
FUTURE DECODED
Introduction
Profit margins are expected to come under increasing pressure in 2012
The market will continue to experience soft rates, high commission fees, and increasing claims costs
Portfolio management will be increasingly critical for insurers
GWP for the landlord insurance market is expected to plateau in 2013 ahead of a return to growth from 2015
Residential landlord market business will grow, but claims costs will continue to be high
Rented property will continue to account for a growing share of households
The retail landlord market will continue to endure low consumer confidence and vacant lots
Retail property faces a tough climate with an increasingly two-tier market
Office property development outside London will continue to be slow
Demand for office property will remain fragile, leading to hesitation in new development financing
The development of new industrial property will remain sluggish, limiting new business
Financing for speculative developments is unlikely to rise in the near future
APPENDIX
Definitions
Brokers
Direct
Gross premium
Prime and secondary property
Reported year combined operating ratio
Small and medium-sized enterprises (SMEs)
Two-tier market
Written premiums
Sources
Methodology
Top 10 commercial property insurers by GWP in 2010
Datamonitor's 2011 Commercial Broker Insurance Survey
Further reading
Ask the analyst
Disclaimer
List Of Tables
Table: Brokers' perceptions of percentage change in premiums in the last year for property owners' insurance (%), 2011
Table: UK commercial property claims costs (£m), 2006–11
Table: UK domestic property claims costs (£m), 2006–11
Table: UK residential households, by form of tenure (millions), 2000–11
Table: UK residential households, share of tenure type (%), 2000–11
Table: Buy-to-let gross advances, by quarter (£m), Q1 2007 to Q1 2012
Table: Private enterprise property construction starts and completions, 2000–01 to 2011–12
Table: Commercial market supply, demand and expected rental levels (% balance), 2009 to Q1 2012
Table: New private industrial and private commercial construction work, by quarter (£m), Q1 2007 to Q1 2012
Table: Property owners' insurance products available on imarket and PowerPlace portals
Table: Top 10 UK commercial property insurance groups, by GWP (£m) and market share (%), 2009–10
Table: Commercial brokers in Datamonitor's insurance survey, by type, 2011
Table: Commercial brokers in Datamonitor's insurance survey, by annual premium income, 2011
List Of Figures
Figure: One third of brokers observed no change in landlord insurance premium rates in 2011
Figure: Private enterprise housing construction starts declined in 2011–12
Figure: 21.4% of surveyed brokers place their landlord insurance with Aviva
Figure: Profitability in the landlord insurance market will come under increased pressure
Figure: One third of brokers observed no change in landlord insurance premium rates in 2011
Figure: Commercial property COR rose above 100% in 2010
Figure: ABI commercial property insurance data reveal a slight decline in claims costs
Figure: ABI domestic property insurance data highlight a 2.4% increase in claims costs
Figure: Residential property market overview
Figure: Buy-to-let mortgages accounted for 11% of total advances made, by value, in Q1 2012
Figure: Private enterprise housing construction starts declined in 2011–12
Figure: Commercial property market overview
Figure: New development activity in both private industrial and private commercial property has declined
Figure: Retail accounts for over one third of the commercial property market by value
Figure: Retail property market overview
Figure: Office property market overview
Figure: Industrial property market overview
Figure: 93.6% of all brokers offer landlord insurance
Figure: Aggregators offer a range of landlord products from various insurers
Figure: 21.4% of surveyed brokers place their landlord insurance with Aviva
Figure: Profitability in the landlord insurance market will come under increased pressure
Figure: Landlord insurance GWP is expected to plateau ahead of an improved economy from 2015
Figure: Residential landlord market business will grow, but claims costs will continue to be high
Figure: The retail landlord market will continue to endure low consumer confidence and vacant lots
Figure: Office property development outside London will continue to be slow
Figure: The development of new industrial property will remain sluggish, limiting new business
