Overview
In the wake of the recent general election, several emerging risks could impact home insurers. The new Labour government’s ambitious housing policies, especially their target to build 300,000 new homes annually (with a focus on affordable and social housing) bring several challenges and potential risks that need to be carefully considered by insurers:
Key Points
1. Volume of New Homes and Quality Control Concerns
- High Target Pressure: Labour's plan to build 300,000 new homes annually might lead to accelerated construction schedules. This increased pressure to meet targets could result in cutting corners in quality control.
- Building Standards: Ensuring that new homes meet current building standards is crucial. Rushed projects may lead to poor construction quality, increasing the likelihood of structural defects and subsequent insurance claims.
- Contractor Oversight: More homes mean more contractors and sub-contractors involved. Ensuring consistent oversight and quality assurance across numerous projects is a significant challenge.
- Supply Chain Pressure: Builders may be more attracted to working on new homes due to higher profitability. This could lead to pressure on the supply chain when insurers need repairs, potentially pushing up prices.
2. Building on 'Grey Belt' and Unsuitable Land
- Definition of 'Grey Belt': Areas classified as 'grey belt' often include land previously considered unsuitable for building due to environmental concerns or previous usage.
- Flood Risks: Building on marginal lands can increase the risk of localised flooding. Properties on such lands are more vulnerable to environmental changes and extreme weather events, leading to higher insurance claims for water damage.
- Soil Stability: Grey belt areas may have issues with soil stability, leading to subsidence and structural issues over time.
- Utility Strain: Increased strain on utilities, including water and sewage infrastructure, might lead to increased flooding during high water events.
3. Streamlined Planning Processes
A Planning and Infrastructure Bill was announced in the King’s Speech on 17 July which is intended to remove barriers in the planning system
- Reduced Scrutiny: Reforms to streamline approval processes can potentially reduce the time available for thorough environmental and structural assessments, leading to an increase in risk for insurers.
- Approval Bottlenecks: Rapid approvals may lead to bottlenecks in other areas, such as utility connections and road access, which can delay projects and affect the overall quality of developments.
4. Direct Government Investment
- Funding Allocation: Government investment in housing is positive but needs careful management to ensure funds are appropriately allocated to quality assurance and not just quantity.
- Public vs. Private Development: Balancing the quality control between public housing projects and private developments will be crucial. Inconsistent standards can lead to varying levels of risk for insurers.
5. Affordable and Social Housing Specific Risks
- Demographics and Occupancy: Affordable and social housing tends to have higher occupancy rates and potentially more wear and tear, leading to increased maintenance issues and insurance claims.
- Location Risks: These housing units are often located in higher-risk areas, including urban fringes and areas prone to environmental hazards.
6. Increase burden for Landlords – Renter’s Reform Bill
The King’s Speech on 17 July announced the introduction of a Renter’s Reform Bill which is expected to:
- Abolish no fault evictions.
- Make it easier for tenants to challenge rent rises.
- Increase the requirement on landlords in relation to hazardous properties and ensuring their properties are more heat efficient.
The impact of these reforms may cause supply issues in relation to the availability of alternative accommodation for policyholders, leading to increased costs in the provision of this service.
Risk Mitigation Strategies
1. Enhanced Underwriting Criteria
- Incorporate more stringent criteria for underwriting policies for new builds, especially those in grey belt areas.
- Use detailed risk assessments and consider geographical and environmental data when evaluating new policies.
2. Collaboration with Developers
- Engage with property developers early in the planning stages to ensure compliance with high building standards.
- Promote best practices and the adoption of robust quality control measures across all projects.
3. Advocacy for Rigorous Planning
- Work with government and planning authorities to advocate for maintaining rigorous scrutiny within streamlined processes.
- Push for mandatory environmental impact assessments for all new housing projects.
4. Insurance Product Innovation
- Develop new insurance products tailored to the specific risks associated with affordable and social housing.
- Offer premium incentives for properties that exceed standard building codes and have robust risk mitigation measures in place.
5. Monitoring and Adjustment
- Continuously monitor the performance of new builds and adjust risk assessments and premiums based on emerging data and claims trends.
- Invest in advanced data analytics and geospatial technologies to better predict and manage risks.
6. Upskilling and Increasing the Labour Market
- Address the need for more skilled labourers, which may be helped by the introduction of Skills England, as announced in the King’s Speech.
- Encourage apprenticeships in the construction sector to ensure a steady supply of skilled workers.
7. Improving Water and Sewage Infrastructure
- Implement measures such as retention lakes on larger new build sites to manage extreme weather events and hold back water.
- Ensure improved infrastructure for water and sewage on new build sites.
8. Alternative Accommodation Supply
Working with Government and Landlords to increase the supply of Alternative Accommodation:
- Explore different supply models that do not impact the rental market supply, such as using student accommodation.
- Utilise housing stock that may have previously been used for holiday lets or Airbnb.
Conclusion
Labour’s housing plans present both significant opportunities and considerable challenges for home insurers. The ambitious target of building 300,000 new homes annually introduces risks related to quality control, contractor oversight, and supply chain pressures, potentially leading to increased insurance claims. Building on grey belt and unsuitable land further exacerbates concerns about flooding, soil stability, and utility strain. Streamlined planning processes and direct government investment, while beneficial, require careful management to avoid reduced scrutiny and inconsistent quality standards.
The specific risks associated with affordable and social housing, along with the increased burden on landlords, could lead to higher occupancy rates and more maintenance issues, potentially impacting insurers. To mitigate these risks, insurers will want to collaborate closely with developers, advocate for rigorous planning standards, and innovate their insurance products. Monitoring and adjusting to emerging data is also a crucial strategy.
By proactively addressing these challenges, insurers can effectively manage their risk exposure and support the development of safe, high-quality housing for the future, aligning with Labour’s ambitious property pledges.
To discuss this further, get in touch:
Matthew Rogers - Partner
Email: mrogers@keoghs.co.uk
Natalie Larnder - Head of Market Affairs
Email: nlarnder@keoghs.co.uk
