Underwriting Brexit for landlords – 3 potential outcomes

30th November 2018

The post-Brexit landscape is the known unknown of the moment, but there are some things we can be reasonably sure will still be with us in the event that we leave the European Union: The sun will still rise in the morning; weekends still won’t be long enough; and we will still pay taxes.

These aren’t much help to businesses though, many of whom are potentially facing some very different futures depending how things play out.

It’s the potential range of impacts for our policyholders that I’m most interested in. Take for instance landlords – it strikes me that for them the impact of Brexit could go one of three ways:

Scenario A – Job losses and rent arrears

Brexit will result in economic instability that will adversely impact on businesses and result in job losses. The result of tenants losing their jobs will then put pressure on their ability to pay their rent.

This is bad news for landlords in general, although some will be more protected than others; those with landlord legal expenses insurance and rent arrears insurance will have protected themselves, allowing them to take legal action against their tenants while also having their shortfall in rent covered by the insurance.

The overall impact of this is likely to result in an increase in the frequency and cost of claims to the legal expenses insurer.

Scenario B – Falling property values and tenant demand

Brexit will result in a reduction of foreign investors in the UK property market, reducing demand on property and leading to a reduction in property values.

This will result in a reduction in tenant demand due to tenants now being able to afford to buy their own property. This in turn makes the market more competitive for tenants by reducing rents and easing the financial demand.

Landlords would see a reduction in income but this would be unlikely to adversely affect the frequency of rent arrears claims to insurers, and could also have the impact of reducing the overall claims cost due to lower rental values.

Scenario C – ???

Something completely different will happen.

Okay, so the third is said with tongue firmly in cheek, but hopefully you’ll take my point.

Of course this is just one very specific and narrow example, but hopefully it illustrates the challenge of underwriting in a future that looks so uncertain.

Our customers are at the heart of everything we do, and delivering a future-proof product at a sustainable price is why we are here – certainty or otherwise. Although they may be out of fashion in some circles, we’re proud to be experts.

Given that Brexit – at the time of publication at least – will have happened by mid-2019, insurers will need to decide on their underwriting strategy across multiple lines of business, and it will be their financial results at the end of 2019 and 2020 that will determine how successful they were.

It’s a tall order, but an opportunity for underwriting industry experts to really show their worth.

So which way do you think it will go then? Answers on a postcard please.

Nathan Holt is Head of Trading Underwriting at DAS UK Group

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