Cover restrictions, construction costs and the rise in cost of living: what does it all mean for property renewal premiums?

With soaring rebuild costs and a surge in weather-related claims, Noel Preston takes a temperature check on property insurance and what it means for your business. 

Property insurance might not be your preferred topic of choice around the dinner table, or any table for that matter. But with businesses across the UK facing rising renewal rates, it’s worth taking a minute to understand how it might impact your policy and what you can do to prepare.

To many, a rise in renewal costs comes as no surprise. With GlobalData reporting half of UK SMEs faced higher commercial property insurance premiums over the past year, it’s safe to assume the trend will continue for the best part of 2023.

And with rising rebuild costs, a spike in weather-related claims and an index rating the highest it’s been for the past 30 years, now’s the time to prepare for your renewal.

A leap in index linking

To help prevent your property from being under-insured ahead of a renewal, insurers apply an index linking as an inflationary provision to keep pace with the rise in rebuild costs, professional fees and many other factors.

Right now, index linking is the highest it’s been for a long time, with increases of 18% for residential and 10 to 15% for commercial. If that wasn’t enough, insurance rates are also rising, with renewal premiums coming in 15 to 20% higher than previous years.

As we head towards Q2, we anticipate these levels will remain static with modest fluctuations influenced by bodies such as the Building Cost Information Service (BCIS), who provide regular guidance on property rebuild costs.

We’re in a hard market

For the first time in the past decade, we are in what insurance experts refer to as a ‘hard’ insurance market. It means we’re in the upswing of a market cycle where premiums increase and capacity for varied insurance products decreases.

For insurers, it adds even more weight to mitigating risk and making profit – both of which are reflected in the continued rise of SME renewal premiums we’re experiencing across the market.

“Property insurance is in its toughest market for a long time; price rises, cover restrictions, cost of materials and the cost of living are all related factors that may affect your quote or renewal premium.” — Noel Preston, Managing Partner at Preston Insurance Brokers

Increasing claims and costs

Figures released by the Association of British Insurers state commercial property claims increased by 8% to £542m compared to Q2, 2022. Already this year, we’re seeing further increases in weather-related claims and rebuild costs, both of which are narrowing profit margins for UK property insurers.

But despite a trend in rising claims, insurance premiums have remained relatively stable over the past three years and, as such, have become dysfunctional in today’s market.

With earnings dented by disaster and pressure mounting to increase profits, we’ve already seen insurers apply a 10 to 15% increase on premiums – even for those with a claim-free history.

Though difficult to predict, it’s anticipated these renewal cost increases will continue for the time being and then hopefully begin to plateau at some point through the year. With that said, we’d advise property owners to address their renewals as soon as possible.

Looking ahead

Right now, the insurance market is drifting into unfamiliar territory. But with current levels of index linking and rising costs in construction, materials and professional fees, we anticipate witnessing up to 25% increases on premiums across the course of the year depending on the type of property and claims history.

At Preston Insurance Brokers, around a third of our book of business is made up from property owners insurance renewals. We’re well placed to help every type of property owner; commercial, mixed use, residential, blocks of flats and those with non-standard construction (i.e. bungaroosh!).

In addition to our vast knowledge and experience we differentiate from other brokers with access, not only to the general insurer market, but also to specific and exclusive schemes, facilities and via Lloyd’s of London for the more unusual risks.

If you have any questions, feel free to contact us on 0333 222 1188 or email info@prestonib.co.uk.