If you’re responsible for insuring an unoccupied property during probate, standard insurance often won’t be suitable, so block policies seem convenient and affordable.
But hold on! These policies often hide conditions and exclusions that could leave you and your clients with issues in the event of a claim.
This article explains the risks and offers a safer alternative.
In this article I will cover:
- What is a block policy and when is it typically used.
- Why a block policy might sound attractive?
- What are the risks of using a block policy?
- Beware of non-regulated providers
- The PI Risk for Law Firms
- The alternative, safer solutions from Insuristic.
What is a block policy and when is it typically used?
Block policies are a long-established way for the owners of occupied property portfolios to quickly insure their property assets. Designed for administrative ease, these policies allow adding properties upon purchase and removing them upon sale.
Block policies as a result are often operated by large property-owning firms and insolvency practitioners.
Block policies are not usually designed for portfolios that are largely unoccupied or to be arranged by firms with no legal ownership or insurable interest.
Why a block policy might sound attractive?
Block policies might sound attractive to law firms as they are often:
- Provided by insurance providers that you have heard of.
- Require limited information to put a property on cover.
- Operate on a master policy, covering all the property you are responsible for.
- Low cost, with a flat monthly fee to cover any property.
- Have no unoccupied property inspection condition.
Businesses that own or are legally responsible for a large number of occupied properties will find a block policy a highly effective way to arrange insurance.
However, many of the policies in the market are not designed for unoccupied property, hence why they do not contain an unoccupied property inspection. These policies will likely contain policy conditions that can cause issues when there is a claim.
What are the risks of using a block policy?
We have reviewed several block policies commonly used in the market.
For some policies, our findings are quite concerning, and these policies would not have passed our fair value assessments as they are likely to result in some claims being rejected.
In this section, I will talk about the risks identified in some of these policies that affect law firms, executors, personal representatives and beneficiaries.
If you are using a block policy, I would urge you to review your policy wording in relation to these comments.
Or alternatively, Insuristic would be happy to provide a free review of your property insurance arrangements.
A Block policy is not usually designed for retail customers (i.e. consumers)
Any insurance firm providing insurance for retail customers, such home insurance or unoccupied residential property insurance should provide an Insurance Product Information Document (IPID) to their customers at both quote and policy stage.
The IPID is designed to quickly highlight what is covered and what is excluded to help people identify their cover.
An IPID is not required for commercial customers, who are usually acting for purposes relating their trade or profession. Hence why many of these block policies do not provide this important document.
The end recipient of an unoccupied probate property insurance policy is usually a consumer.
They also would often be classed as a vulnerable customer that would benefit from an IPID to help them understand the cover they need to comply with.
Had the block policy I reviewed had an IPID, I doubt many firms would be relying on it to insure the probate property policy they are responsible for.
All Risks Policy Wordings
While named ‘All Risks,’ these policies don’t cover all potential property risks. They will likely contain policy conditions and exclusions that you need to be aware of.
Here are some examples:
An Unoccupied Buildings Condition:
One wording we reviewed had a condition in the policy requiring immediate notification and potential premium hikes upon vacancy, which contradicts the policy’s purpose of insuring unoccupied properties, making it an unreasonable policy condition.
Another policy had Exclusions for claims relating to Fire caused by
-
- Explosion resulting from fire.
- Riot and/or civil commotion
These exclusions are common in a commercial property insurance policy wording (as cover can be arranged on separate policies) but are unlikely to be found in a residential property insurance policy.
To expand on the risk of these exclusions further:
- Could result in a significant proportion of a claim being rejected. For example, if there is a fire, which results in a gas explosion that increases the loss, the fire damage would be covered, but the explosion element of the loss (collapsed walls, ceilings etc.) would not be.
- Commercial property owners would insure this risk on a terrorism insurance policy. As an example, in this wording, damage caused by the Birmingham Riots in 2011 would not have been covered.
Exclusions for Claims caused by Explosion
Another exclusion to look out for is Explosion, this time as a peril in its own right and not connected to Fire.
One of the block policies that we reviewed completely excluded this.
This is risky for policyholders.
According to the Guardian, one in three households are skipping annual gas safety checks.
Would you know when the gas was last inspected by the deceased or the beneficiaries?
Claims caused by Gas explosion can result in a total loss of the property.
Home or residential property insurance policies would not contain this exclusion for explosion by domestic boilers and appliances.
Theft Exclusions
Incredibly, one of the wordings I reviewed excluded any theft and subsequent damage, unless the property is occupied by the insured.
As this is a block policy, the insured would be the firm arranging the insurance and unlikely to ever be occupying the property.
The subsequent losses would include any damage as a result of a break in, including theft, vandalism and malicious damage claims.
The exclusion included subsequent damage caused by fire or explosion.
Imagine if the property you are responsible for was covered on this policy and had a break in, which resulted in a fire and total destruction of the property…. You and the executors could be liable in full to the estate for the uninsured loss.
Exclusions for Escape of Water Claims
Escape of water claims are the most common claim on unoccupied residential property insurance policies.
Yet the policy I reviewed excluded claims in respect of damage to property caused by escape of water from any tank, apparatus, or pipe.
Many unoccupied property insurance policies exclude these types of claims, but it is possible to buy the cover.
Insuristic provide this as a cover option on our probate house insurance policy (for lay executors) and as standard in our Probate Pro Policy (for law firms).
Insurable Interest
Does the firm administering the insurance for the property have an insurable interest in the property?
An insurable interest exists if the person arranging it would suffer financially if the property or its contents were damaged, lost or destroyed.
If there is no insurable interest, the contract of insurance can become void from inception, leaving the property uninsured.
Examples of where insurable interest exists:
- An executor or personal representative is legally responsible for insuring the property. They have a financial interest in the property and must insure it.
- A law firm acting as an executor, personal representative or appointed to provide estate administration services, have a financial interest as they could be held liable by their client for any uninsured losses.
An example of where an insurable interest may not exist is a third-party property management firm, providing inspections, clearance or renovation services.
In this example, the firm would be unlikely to have to have an insurable interest, unless they have signed a contract making them responsible for arranging insuring the property and receiving any claims payments from insurers to reimburse the estate.
Beware of non-regulated providers
If your property partner is a non-insurance firm, you should also check the firm is regulated to provide insurance.
The firm should be either directly authorised by the FCA or be an Appointed Representative of another FCA authorised firm, with permissions to provide insurance services.
You should check the FCA Register to review this.
If they are either not listed as being authorised or they are an Introducer Appointed Representative (IAR) to an authorised firm, you should not deal with them because:
- Any firm not authorised by the FCA cannot provide any form of insurance service to you.
- An IAR cannot get involved in capturing data, seeking insurance quotes or arranging insurance on your behalf. All they can do is introduce you to their FCA principal firm, who will contact you to discuss your insurance requirements.
- A non-FCA regulated firm or IAR will not be able to arrange professional indemnity insurance to cover their professional activities.
If you only work with FCA regulated firms you will benefit from:
- The fact all FCA regulated firms have to buy professional indemnity insurance to a minimum of €1.2 million.
- Protection from the Financial Ombudsman Service should you have an unsatisfied complaint against the firm arranging the insurance or the policy they have arranged.
The PI Risk for Law Firms
Law firms promoting unsuitable block policies face significant risks.
Not only could their clients lack recourse and face financial losses, but the firms themselves could be held liable due to inadequate vetting, lack of regulation, and potential negligence claims from beneficiaries.
Understanding policy gaps and recommending appropriate solutions is paramount to protecting both the estate and your own professional standing.
The alternative – Talk to Insuristic
Insuristic has developed two exclusive insurance schemes specifically for unoccupied property in probate (neither are block policies):
Probate Pro – for Law Firms
Will help law firms arrange insurance within a minute, with limited questions to answer, broad cover as standard and the option to pay monthly (interest free) or annually.
If a property doesn’t fit the scheme, you need advice or you require a full broking exercise, the in-house broking team at SJL Insurance can do this for you. What’s more, this service comes with advice and recommendations on cover suitability, which would protect your PI.
You can find out more here.
Probate Property Insurance for Lay Executors
If you aren’t arranging the insurance for your clients, they can arrange this themselves online in a couple of minutes. Again, there are limited questions to answer, three levels of cover to choose from and the option to insure for 3, 6, 9 or 12 months. You can find out more here.
Both Probate Pro and our Lay Executors proposition benefit from:
- A Rated Insurer capacity.
- An insurance policy in the name of the estate, supported by an IPID to help all stakeholders understand the cover.
- An inhouse claims team to help manage the process from start to finish and negotiating the best possible claims settlement for the estate.
- No policy fees.
- No fees to cancel a policy, and pro-rata refunds for any unused cover.
If you are interested in discussing this further, please get in touch at Hello@insuristic.co.uk
Insuristic Limited (No: 13926650), is an Appointed Representative of SJL (Worcester) Ltd, who are authorised and regulated by the Financial Conduct Authority with the reference number 763599. This can be checked by visiting https://register.fca.org.uk
