Insurance Times reported on the comments and opinions shared in the ‘Buildings Insurance Hackathon: Understanding the Problem’ webinar, hosted by Insurtech UK, with TrackMyRisks chief executive and co founder Matt Hodges-Long stating that leaseholders of high rise residential buildings ‘have been severely impacted financially by sky-high insurance premiums following the reaction to fire, cladding and safety systems post-Grenfell’.
The news outlet noted that with the government ‘pushing the full cost of building safety works on to leaseholders’, a range of ‘further problems have surfaced’ for both residents and insurers, with professional indemnity insurance just one of a series of areas that ‘fail to deliver the services that society requires’.
Mr Hodges-Long said that ‘we have reached a critical point in the ability of the insurance market to deliver the services that society requires of it’, calling this a ‘market failure’, and terming the fire and loss of life at Grenfell Tower a ‘national disgrace’ as regards the way the fire ‘came to pass as well as the events that have happened since’.
He added that the building safety bill, which ‘imposes a charge on leaseholders for the full cost of building safety works’ (https://www.thefpa.co.uk/news/news/news_detail.leaseholders-worried-about-building-safety-bill-changes.html), was ‘an assault on leaseholders’, and noted that ‘most of the attempts to rectify the problem have actually made things worse for residents’. This included the government’s cladding remediation funding, which ‘compel the applicants to seek redress from whoever is deemed responsible for the buildings having safety issues’.
As a result, building and fire safety ‘is in a mess and this has caused contagion in the insurance markets, so that’s led to a flood of liability claims for insurers’. Citing campaign group UK Cladding Action Group’s survey that found 23% of residents had ‘considered self-harm or suicide’ (https://www.thefpa.co.uk/news/news/news_detail.cladding-leaseholders-mental-health-deteriorates.html), he then moved to discuss the issues around the external wall fire review (EWS1) form, which he said is ‘causing a paralysis for people trying to buy’ apartments in affected buildings.
Recently, the housing, communities and local government committee (HCLGC) found that ‘fixing fire safety defects’ in high risk residential buildings could cost up to £15bn, and branded the mortgage industry’s cladding form ‘slow and expensive’, specifically the EWS1 process to help banks ‘make lending decisions on high rise properties with a potential fire risk’.
It asked for the government to step in, as not only was the process ‘not working’ but it should ‘take control’ by putting a ‘faster and fairer’ system in place, as the ‘industry-designed’ process was ‘slow and expensive’ and ‘applied to an unnecessarily wide range of buildings’. It also believed ministers should have ‘issued clearer guidance’ to mortgage lenders before advising on fire risk buildings.
The form, introduced last December, came from collaborations between mortgage and housing market trade bodies and industry experts, including UK Finance, the Building Societies Association and the Royal Insitution of Chartered Surveyors (RICS). It was intended to help ‘create a standardised process that would make it easier for brokers and homeowners to find suitable mortgages’.
A valuer could request it from a building owner or representative, and require a building professional to ‘confirm that the actual material on the walls posed a limited risk or was non-combustible’. Should it contain materials that ‘posed a significant fire risk’, a ‘detailed description of what was needed to fix it had to be issued’, but within a month brokers began reporting that lenders were rejecting mortgage applications.
This was because of ‘outstanding cladding inspections trapping borrowers with their current providers’, and so applications were being cancelled due to inspection requests – made to management and maintenance companies of high rises affected – being delayed. At the time, this related to ‘those qualified to issue the EWS1 certificate, the number of buildings that need to be inspected and the time needed to complete this review’.
HCLGC said there was a ‘lack of qualified, insured chartered fire engineers to undertake the required surveys’, so a ‘large number of buildings would not be inspected for many years’. The EWS1 surveys have also been expensive, with costs ‘typically passed to residents through their service charges even where no fire safety defects were found’.
As a result of fire safety advice from the Ministry of Housing, Communities and Local Government (MHCLG), ‘a much larger number of buildings’ fell into scope ‘than had been envisaged’, and ‘the process has lacked sufficient input from leaseholder representatives, but also other important stakeholders, including the insurance industry’.
RICS urged the government ‘to take greater ownership of the situation’, whilst also noting that ‘at least’ 860 EWS forms ‘have already been completed’, meaning homeowners in at least 800 blocks ‘have been able to buy, sell and remortgage or plan remediation works. EWS1 was created to find a solution to the problems caused in 18m+ tower blocks by MHCLG advice’.
MHCLG’s consolidated advice note in January 2020 ‘caused further significant confusion when it brought all buildings regardless of height into scope and added to the already known capacity issues with fire experts. RICS continues to call on government to take ownership and properly fund remediation works to all affected buildings. Only with a well thought out, government funded strategy, will leaseholders be able to live in safe buildings’.
Recently, Minister for Fire and Building Safety Lord Greenhalgh held talks with RICS to ‘attempt to resolve confusion’, and then Housing Minister Christopher Pincher stated mortgage lenders are reviewing how the forms are used, though some residents have been told by housing associations that they ‘cannot produce’ the EWS1 form for possibly ‘several years’.
Alongside this, surveyors needed to sign the form are ‘struggling to get professional indemnity insurance’, so they ‘cannot complete that work’, and consequently insurance specifically aimed at blocks of flats – as well as professional indemnity insurance for ‘certified professionals linked to safety’ - is ‘failing’.
Mr Hodges-Long concluded by stating that the ‘result’ is an ‘increasing number of buildings are now either uninsured, significantly under-insured or paying unsustainable premiums’, and it now falls to the insurance industry to ‘accept that there is a problem, not deny it, and get together to do something about it’.