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Insurance: part of your ‘duty of care’

publication date: Nov 4, 2011
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In light of new economic fears, landlords might expect a rise in demand for lettings, but will also see increased risks. Every agent has a duty of care to his clients, so they need to be able to provide landlords with information about insurance without getting bogged down with the detail of actually selling the policy. Although the current uncertainty might boost your business, it could also lead to a rise in risks for landlords. This is where letting agents have a very important role to make landlords aware that specialist let property insurance is available.

Of course, the landlord has the final choice of whether or not they purchase insurance cover, but that should be an informed decision based on the agent having outlined the potential risks and the availability of specialist cover. The message is that every let property is a financial asset and the value of that asset could be jeopardised without proper protection. Most landlords understand the need for buildings cover, but may not appreciate all the risks they face or the cover available to them. 

Tenant-related problems are often where they need the most help.  Despite meticulous reference checks, there is no guarantee that a tenant will not default on their rent due to a change in employment status or personal circumstances.

Selling security
Legal expenses and rent guarantee cover (LERG) provides the landlord with indemnity for legal expenses in pursuit of claims against tenants or any other parties breaching the landlord’s legal rights to a property. It provides financial security if legal proceedings are required and ensures that the rental income is covered. This is good for the landlord and the letting agent. Making landlords aware that specialist insurance is available is an important part of the agent’s role – actually selling the insurance does not have to be. After regulatory changes, direct insurance selling by an agent has become more difficult. A number of agents choose to continue to sell insurance by becoming Appointed Representatives (AR) of an authorised insurance body. For the majority of agents, however, the required cost and increased responsibility of training and compliance was disproportionate to the expected returns on what is essentially a non-core activity.

Becoming an AR is not the only option for agents who need to inform clients on insurance and wish to also profit from the resulting sale of the policy. A more appropriate option for many agents is the option to become an Introducer Appointed Representative (IAR) of and partner with a specialist insurance provider. IARs are not subject to the same level of regulation because they do not advise on which insurance products to buy: they simply inform their clients of the availability of insurance and obtain their permission to pass on contact details to a chosen insurance partner. By developing an IAR 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 their authorised and regulated insurance partner does the work.

Agents who become IARs and establish a partnership with an insurance broker or company are also able to formalise their risk management advice in a way that leaves an audit trail. This is important for agents so that they may protect themselves in the event of a default if the landlord tries to claim that they were not made aware of specialist insurance protection being available. It is also done in a very straightforward way by putting a lot of the responsibility in the hands of their insurance partner.

For the agent, becoming an IAR in partnership with a specialist advisor 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.