This article describes some of the problems associated with subsidence and buildings insurance and offers recommendations on how to deal with these issues effectively.
While the majority of our structural engineers’ reports result from surveyors reports’ and lenders’ valuation surveys, an increasing number of reports are arising from buildings insurance and specifically subsidence cover issues.
These problems include:
- a) Buyers who are unable to obtain subsidence insurance
- b) Buyers who are unable to secure a mortgage because of historic underpinning or insurance claims.
- c) Vendors who are unable to sell their home as there is no subsidence insurance in place.
- d) Vendors who are unable to sell their property because of historic underpinning or minor subsidence claims and superficial repairs, for example, redecoration.
- e) Owners insurance premiums increase or even withdrawn without notice.
- f) Owners who require a structural engineers report to support their application for new insurance terms
- g) Owners re mortgaging are asked for a Certificate of Structural Adequacy to secure new funding even thought current insurance includes subsidence.
- h) Owners subsidence insurance is withdrawn after they have made a claim or even merely notifying the insurer of damage without submitting a claim.
So why are there so many insurance problems related to subsidence?
Readers will see from the points above that the entire property chain, ranging from simple home ownership to buying and selling, is fraught with subsidence insurance issues.
Whilst we are not insurance experts, we believe that many of the issues arise from a simple lack of understanding of the subject. The following points are clear to us:
- a) Property prices are so high that the general public, including insurance company employees, instinctively view cracks in buildings, such as houses and flats, as a significant concern or risk.
- b) Most people believe that any cracks in houses are an issue, however, most are not.
- c) Many people think that cracks in houses are expensive to repair and will jeopardise the process of buying and selling a property. In reality, most cracks are neither serious nor expensive to repair especially when compared to the property’s value.
- d) Insurance companies do not employ technical experts, such as chartered structural engineers, which means they often don’t fully understand the technical issues. Instead they rely on binary computer-generated answers to standardise questions, which is too simplistic a methodology.
Discussion
The starting point with all of these issues is the “risk” specifically “perceived risk”. It all stems from a misunderstanding of how buildings behave and what cracks mean or do not mean. Fear of the unknown perpetuates anxiety until an experienced Chartered Structural Engineer provides a report and clarifies the situation.
It is a requirement of any domestic mortgage that the buyer or owner includes subsidence insurance as part of their buildings insurance policy. The insurance industry provides associated insurance and has to price the risk and ensure premiums to cover the overall costs and contribute to profits, similar to other types of insurance.
Between the 1970s and the 1990s, insurance policy excesses were typically low, around £500. Consequently, large numbers of the public did not hesitate to file insurance claims for minor issues such as small cracks or seasonal movement since the cost of repairs and redecoration nearly always exceeded the policy excess. As an unintended benefit, this often resulted in many rooms being newly decorated leaving them as good as new.
Whilst this article is not the place for a technical engineering thesis, it is fair to say that the subsidence industry, including engineers and surveyors, were somewhat overzealous when dealing with small amounts of cracking. This resulted in expensive underpinning schemes being carried out at huge cost, which was disproportionate to the cost of simply repairing the damage and dealing with offending trees. This legacy has resulted in owners, buyers and insurers being nervous of the terms ‘subsidence’ and ‘underpinning’ as these convey both expense and risk!
These days, it is uncommon to see properties being underpinned. Instead, issues such as tree roots or leaking drains are addressed, followed by straightforward and cost-effective crack repairs.
Insurance primarily aims to repair and restore the pre-damage condition rather than improve it or prevent future damage. A helpful analogy is that of a vintage car: if a fault develops, it is repaired, but the car does not become like new, and the same issue may arise again. Insurance companies have become more stringent in handling claims and prefer to repair damage even at the risk of future repairs, as this is potentially less costly than investing significantly more to prevent recurrence.
As a consequence, the cost of insurance per claim has reduced significantly, yet many household insurance companies are unprepared to offer simple and affordable terms to most domestic homeowners. This leads us to believe that the past perception of expensive underpinning is unfounded.
Why do we all worry about cracks?
This article is not a technical thesis on cracks and the human and engineering implications but it is important to emphasise that most of the issues discussed here are a result of people misunderstanding cracks and what they mean for residential property. Those interested to read more can see separate articles on our blog website about subsidence and minor cracks.
Previous claims and underpinning
Insurance companies often penalise property owners or buyers who have a history of previous insurance claims, especially if underpinning has been carried out. While various issues may arise from this stance, it often lacks sense from a technical and engineering perspective. Insurance firms most likely use simplified algorithms for these evaluations, as employing a structural engineer to assess each case individually is unrealistic. However, property owners or buyers can seek their own expert by employing a chartered structural engineer to assess the situation more accurately and provide a structural engineers’ report.
In the majority of our inspections and reports, where previous insurance claims have been made or underpinning has been carried out, we find that the current and future risks are no different to those of many similar properties in the same geographical area, sharing a similar architectural style and foundations. With over 30 years of experience, it appears that the criteria used by insurers and brokers are far too simplistic, leading to broad generalisations that cause problems for numerous homeowners and potential buyers.
What should you do?
Most of the issues discussed are unfortunate and frequently avoidable if there was a greater involvement of engineers in the decision-making process. This is unlikely to change given the sheer size of the insurance world. However, homeowners and potential buyers can significantly influence the decision making processes by exercising due diligence. This involves appointing an experience Chartered Structural Engineer to advise them. And the insurance company should be reassured by the subsequent detailed report. At the very least, it will provide essential engineering facts and give the insurance company concrete information on which to base their decisions (no pun intended!).
Although this is an extra task and expense, it can be crucial for securing subsidence insurance, which may affect the ability to purchase certain properties. For existing homeowners, it may significantly impact future annual insurance premiums. In many cases, the report’s cost can be recouped within one or two years through substantial insurance savings.
Should you require further advice or have any questions then do call SERL on 020 8161 9900 or contact us and we’ll be delighted to help.
