Pandemic sheds light on landlord insurance myths: Opinion by Sharon Fox-Slater of EBM RentCover
The global pandemic has taught us a lot, but not all of it is about hand hygiene and social distancing. COVID-19 has also highlighted important misconceptions about landlord insurance.
The insurance industry is already complex enough without the added ramifications of a global pandemic.
However, Australia and the world have been plunged into a new reality.
With the abundance of information online (and a lot of it conflicting), how does one determine what guidance to follow and what guidance to ignore?
For a lot of Aussies, insurance is considered a necessity in order to safeguard finances.
However, for another group of Aussies, insurance is considered unnecessary and a waste of money.
The COVID-19 situation has taught us a lot – it has taught us to self-isolate while remaining connected, to embrace change and to build resilience.
It has also taught some unsuspecting landlords the true value of landlord insurance.
Here are five misconceptions about insurance that are being highlighted on the back of the global Coronavirus outbreak.
1) I don’t need landlord insurance
If you are lucky, you will never have to claim on your insurance. However, the reality is, you just never know what circumstances you are going to find yourself in.
In fact, in 2019 we paid out in excess of $26 million for all sorts of claims, including tenant damage, pet damage, loss of rent, fire and storm damage, and legal liability.
Without adequate insurance, those unfortunate clients would have had to foot the bill on their own.
COVID-19 has further proved that anything can happen; accidents and unexpected disasters can, and often do, occur.
When landlords are involved in the unpredictable, it is important they have protection for their investment.
2) Insurers will always offer cover
Insurance is all about risk and it is designed to cover unforeseen events.
When the risk is too high, insurers have a right to halt new business.
Due to the economic climate on the back of the COVID-19 pandemic, this was a reality.
Rent default – a common feature in most landlord insurance policies – was no longer considered an unforeseen event as the risk of it happening increased.
Because of this, the risk of covering this type of loss also increased, and a decision to halt cover was made by most landlord insurance providers.
It is the same as halting cover on fire damage when a bushfire is imminent.
3) Self-management is the best option because it is the cheapest
When landlords are deciding whether to self-manage or use a property manager, several factors are considered, including the time and effort required to manage a property, the costs and, most importantly, the legal requirements and obligations.
On the back of COVID-19 many states and territories amended and/or are implementing changes to tenancy legislation.
This means those leasing property need to be aware of the changes and how they apply in their situation.
Understanding laws and obligations is a key benefit of engaging a professional property manager.
They are required to be up-to-date with legislation and all regulations that apply to rental properties – not just the Residential Tenancies Authority but also other applicable legislation including building safety, strata laws, and short-term accommodation.
No-one wants to fall foul of the law, and having a competent agent managing the investment property can help ensure that doesn’t happen.
4) I can submit a claim at any time
Often there is confusion around when is the best time to submit a claim.
Some people assume they can submit a claim before the loss has occurred, on the basis that the risk is imminent (e.g. we had people trying to submit claims because they predicted their tenant would eventually default on rent due to the economic impacts of the COVID-19 pandemic).
Other people believe they can submit a claim on day one of the loss (e.g. the first day the tenant defaults on rent).
Generally, you should submit a claim when you suffer financial loss, and after you have followed all the legal requirements to try and recoup the rental payments and/or minimise further loss.
Before the pandemic, this was a simpler process – when a landlord/property manager faced a loss of rent situation, they would apply to the tribunal to have the tenant evicted.
Once the tenant had left the property, the full extent of the loss was evident and the lost funds could be recouped by the insurer.
However, on the back of the government-forced freeze on evictions (which prevents standard processes that surround rent default from being followed) this process is much more convoluted.
This is mainly due to the fact that insurers are unable to establish overall losses while a tenant is still residing in a property, and while court orders are unable to be obtained.
At EBM RentCover, to ensure we can properly assess the situation of the client and provide appropriate settlements, rent default claims should be submitted once the moratorium is lifted in late-September.
That way, we can really uncover the extent of a claim and provide an accurate review and pay-out.
5) Pandemics don’t impact landlord insurance
On the back of COVID-19, we saw major changes to the way rental properties are managed.
Legislation was changed, agents had to implement virtual inspections and a six-month moratorium on evictions was applied.
This is where we saw the biggest implications to our landlord insurance offering (e.g. we had to halt cover for a short while) and the settling of claims (e.g. loss of rent claims will be settled after the government’s freeze on evictions comes to an end).
Apart from these indirect implications, it is business as usual for those who already have cover.