Agents are quitting the industry because of the state of their own finances and amid concerns over the future.
A Lloyds broker specialising in Professional Indemnity insurance for agents yesterday reported that 20% of policy renewals lapsed in December and January – compared with 0% last year.
Lonsdale Insurance Brokers, which is based in the City and currently has some 2,250 estate and letting agent clients, asked those who had let their policy lapse about their reasons for not renewing.
Oliver Wharmby, PI specialist at Lonsdale, said: “The main one was financial difficulty and therefore they were closing the business, or focusing the business in a different direction where PI is no longer required.”
Referring to issues such as Stamp Duty changes, which have damaged the markets for more expensive properties and for buy-to-let purchases, and the impending ban on letting agent fees, Wharmby said: “Many of our policy holders are expressing concerns about the challenging times ahead.”
However, he warned that agents who have decided to close or sell their business should be aware of risks that may continue to apply because of historical liability.
To cover that, agents may have to buy run-off cover – the RICS, for example, requires six years’ run-off insurance to cover any claims that may arise from incidents before sale or closure.
Wharmby said that while his firm – which also supplies PI and Client Money Protection insurances through the Property Ombudsman scheme – is seeing an increase in the number of agents closing or selling, “We are still seeing a steady number of new start-up agents who appear to be mainly focused on residential lettings and management”.
He also that insurers are seeing a spike in new claims from the following areas:
- Failure to lodge tenants’ deposits and issue the accurate prescribed information within the required timeframe.
- Theft during viewings – particularly noticeable in and around London
- Bogus buyers
- Fraud and cyber liability
- Trading Standards fines (not covered by PI insurance) relating to letting agents’ failure to display their fees
- Personal injury or ‘slip and trip’ claims
He warned agents never to leave viewers unattended, and to be especially vigilant on open days. He also advised using Google to search individuals early on in the sales and lettings process; and to put basic controls in place, such as regular password updates, to try and prevent cyber crime.
He said: “Challenging market conditions always influences an increase in claims frequency. The reason is that businesses become busier and are under more pressure to perform, with the net result often being that errors are made and claims brought by clients for losses suffered.”
In addition to valid claims, he said: “Challenging market conditions typically contribute to an increase in spurious claims against professional advisers.
“The consumer is better protected than ever before and with legislation constantly evolving, property professionals are finding themselves more and more exposed to negligence claims.
“No Win, No Fee law firms only serve to exacerbate the problem and increase the duration of the claim and the costs incurred.”