Insurance is not immune from cost pressures, so sometimes premiums need
to change. Premium adjustments respond to several different factors. Read on to
find out what these are.
Landlord
insurance. You know it’s necessary. But how often do you stop and consider how
it works and what determines its cost?
Let’s start at the beginning – what is insurance?
Insurance
is ultimately a risk transfer – you relieve yourself of risk (and worry) and
pass it over to an insurer, for a cost. This cost is known as a premium.
A premium is made up of a base rate (this is the actual amount it costs
to insure the property) and additional fees, such as government charges and
administration fees.
How are premiums calculated?
Determining
landlord insurance premiums is highly complex. It considers many factors and
uses statistics and probabilities to determine the risk, along with the
likelihood of claiming. These factors are analysed, and a premium is determined
for the insurer to assume those risks.
Basically
it’s all about risk. And an insurer will set the premium to reflect the risks
posed. When the risk of accident, loss, theft or catastrophe is higher, often
so too are the premiums.
Why do premiums increase and decrease?
Premiums
are often influenced by what’s happening in the community at large (e.g. the
level of claims, especially following a natural disasters). In recent years,
re-building costs (materials and labour) has been a contributing factor to
premium increases, along with increasing rents (the cost of renting a property
in most states is more than it was a few years ago). The cost to replace a
property that is damaged or destroyed today, will be greater than it would have
cost to replace five or even just one year ago (this means sum insureds are
higher). For these reasons, claims will cost the insurer more, so the premium
will be higher.
Premium
prices need to factor in the costs insurers incur (e.g. costs of running a
business) or may incur (e.g. to pay out claims), in providing coverage and
service. It is important to understand that insurers are businesses, and they
need to set premiums so that their businesses are sustainable.
What factors affect your premium?
There
are several factors that influence your landlord insurance premium. Factors
specific to your property include:
- Property address
- Type of building,
age, condition, construction materials and property size
- Risk mitigation
measures in place such as security
- Type of insurance
(building, contents or both) and type of policy (based on how the property
is let)
- Sums insured
- Level of cover,
including any optional extras
- Price of rent
- Property
occupancy (rentals that are vacant for long periods may attract higher
premiums)
- Natural disaster
risk (e.g. cyclone, floods, bushfire)
- Personal and
individual property claim history (previous claims and incident history)
Premiums
are also impacted by other factors including:
- Large-scale
claims due to natural disasters such as floods, storms,
bushfires and cyclones – in Australia, this is a leading factor in
premiums increasing, as insurers may need to offset losses incurred by
increasing premiums the next year to restore the balance between the pool
of funds available to pay claims and the risk
- Cost of claims
the insurer (and underwriter) have paid to other customers and claims they
expect to pay in the future
- Repair and
replacement costs (e.g. the cost and availability of materials and labour)
- Inflation and
changes in government taxes, duties or levies
- Rent prices (with
higher rents charged, payouts for loss of rent claims are also higher)
- Insurer’s
cost of doing business including regulatory requirements
- Other commercial
considerations such as investment returns or combating insurance fraud
To summarise…
At the
end of the day, insurance is about protection against the unforeseen. If you
value peace-of-mind, reliability and financial security, then the cost of
transferring risk is likely to be very appealing. To determine the value
offered by insurance, consider what would happen if your investment property
was severely damaged or destroyed by a fire. Without insurance, you would be
left to cover the rebuilding or replacement costs yourself, with insurance you
have a financial safety net.
There’s
no doubt determining landlord insurance premiums is a complex exercise, but at
EBM RentCover we make sure our premiums are affordable and work hard to deliver
reliable insurance solutions so that landlords and property managers feel
confident the property is well protected and we can continue to offer the
service and support our clients have come to expect from us.
*While we have taken care to ensure
the information above is true and correct at the time of publication, changes
in circumstances and legislation after the displayed date may impact the accuracy
of this article. If you need us we are there, contact 1800 661 662 if you have
any questions.
(Supplied by EBM Insurance)
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