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Creating a new income stream through insurance

publication date: Aug 11, 2008
author/source: Miles Ritchie
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The current economic climate has boosted business in the lettings industry but these uncertain times for the economy could see risks for landlord clients rising. Miles Ritchie, Managing Director of let property insurance and tenant referencing specialist Property Risks explains how agents can ensure clients are properly informed about insurance without getting bogged down with the detail of actually selling the policy.

In the context of the current climate in particular, landlords need to understand the unique risks they face and letting agents can play a key role in ensuring that their clients are appropriately advised. As one leading agent that we work with put it recently, agents have a duty of care to advise their landlord clients that specialist let property insurance is available.

Rented property represents a financial investment and the value of that investment could be jeopardised without proper protection. Of course, the landlord has the final choice of whether to purchase insurance cover or not, but that should be an informed decision based on the agent having outlined the potential risks and the availability of specialist insurance cover. It is never safe to assume that landlords fully understand the risks they face or that they are aware of the types of cover available to them.

Most clients will understand the needs for buildings cover but they may not be aware of additional cover that will help protect their investment should problems with tenants arise. No matter how carefully a tenant is referenced, there is no guarantee that a change in personal circumstances will not result in an inability to pay rent or that other problems may arise down the line.

Legal expenses and rent guarantee cover provides indemnity for legal expenses in pursuit of claims against tenants or claims against parties breaching the landlord’s legal rights to a property – in short, it provides financial provision should legal proceedings be necessary and ensures that the rental income will be covered.

Advising the client that there are specialist insurance options is essential and we would also strongly suggest that this process is formalised in some way to create an audit trail. This could help to protect the agent in the event of a default if the client tries to claim that they were not advised to consider insurance.

So recommending that a client should consider insurance should form an essential part of the agent’s role in the letting process. However, actually selling the insurance does not have to be. Post FSA a number of agents did decide to go the route of becoming Appointed Representatives (AR), but for many the time and effort required for the training and ongoing compliance was out of proportion for the returns on what is essentially a non-core activity. That decision is understandable but we have already established the principle of needing to advise clients to seek insurance as part of the duty of care so why not be in a position to profit from the resulting sale of the policy?

Becoming an AR is not the only option and may not be the best option for most busy agents who cannot afford, or do not wish, to be diverted from their core business. An alternative and often more appropriate option can be to become an Introducer Appointed Representative (IAR) and partner with a specialist insurance provider.

IARs are not subject to the same level of FSA regulation because they do not advise on insurance products: they simply inform their clients of the advisability of insurance and obtain their permission to pass on contact details to their chosen insurance partner.

By developing such an arrangement, the letting agent effectively has its own insurance department, provided by their insurance partner. When a policy is sold or renewed the agent receives the introducer’s commission but the insurer does all the work.

For the agent, becoming an IAR in partnership with a specialist adviser has the advantage of providing a valuable income stream for minimal effort. It ensures that the agent delivers the duty of care owed to the client, it adds value to the service offered and it ensures that the client’s insurance needs can be fully and professionally fulfilled.