Why is HMO Insurance So Difficult To Obtain?

Why is HMO Insurance So Difficult To Obtain?

Even the most experienced Landlords are often surprised by the Insurance markets' lack of appetite for House of Multiple Occupancy risks and buying HMO Insurance can quickly become a painful process as insurer after insurer declines to offer cover.  But why are HMO Landlords being singled out as the black sheep of the lettings market?

#1 Lack Of Understanding

The simplest explanation is a general lack of understanding from traditional insurers.  Whilst the licencing process still has work to do in terms of consistency, there is no doubt that the system will continue to flush out rogue landlords and improve the general standards of multiple tenancy properties.

However, the majority of insurers have been slow to adapt and still see all such risks in a negative light - this is a shame as HMO Landlords generally adopt a much stronger risk management framework, particularly when compared to accidental landlords who may not have the experience, or time, for such a hands-on approach. 

#2 Policy Wording Restrictions

Mainstream Landlord Insurance policy wordings will typically be restricted to a single tenancy agreement which must be six months or longer in length - In property terms a standard single "Assured Shorthold Tenancy agreement (AST). 

The Insurance industry needs to do much more in terms of transparency as many of these conditions are hidden away in the policy documentation and for those landlords not using a specialist property insurance broker, such as Insync, it is all too easy to overlook and a multi-tenancy property could easily be insured incorrectly. 

TOP TIP - Make sure you obtain written confirmation from your Insurer that they are aware your property is multi-tenancy and a licenced HMO before you accept a policy.

#3 Fire Risk

Insurers base their underwriting criteria and pricing on experience and historical data.  It is difficult to argue with the facts that an occupant is six times more likely to suffer a fatality due in a fire in a House of Multiple Occupation than a standard residential property, even more alarmingly is the fact that this statistic rises to sixteen times more likely if the HMO exceeds three storeys.

However, much of this information was gathered and based on pre-licencing and is in fact one of the key reasons legislation was introduced.  HMO properties are now protected much more effectively in terms of fire suppression systems and / or extinguishers, as well as providing clear and more adequte fire exits.  All of these risk improvements will dramatically improve safety and fire frequency, but many insurers are yet to recognise this in their pricing or acceptance criteria.

#4 Bad Press / PR

Rogue Landlords make popular news stories for publishers and can often paint a poor picture of the entire HMO industry.  This is a real shame, but I don’t suppose “Essex Landlord opens new HMO to ease housing crisis” is as exciting to their readers!

In reality, the property industry is no different to any other, there are a small number of poor landlords, but the majority, particularly when dealing with licenced HMO’s, run a tight ship and provide a great service to the local community.

Underwriters in their ivory towers will read negative press coverage and sight this as a solid reason why they should keep away from multiple let properties. However, the smarter, more nimble players are adopting a smarter approach to risk selection, working with specialists who understand the market, allowing them to develop specialist HMO Landlord Insurance cover targeted at professional landlords.

#5 Licencing Confusion

At the risk of repeating myself, HMO licencing must be a good thing - something which flushes out the minority who put lives at risk, as well as raising overall safety standards must be a positive.  However, the general lack of consistency and confusion from one local authority to another is not helping anyone, even the most experienced Landlords find these matters confusing in terms of:

  • What constitutes an HMO property?
  • Do I need to get my property licenced?   
  • What is the licencing process?

I’m a positive chap, and I like to see this as an evolving process,  I pray that I am not being naive in my hope that a national standard (hopefully UK wide) will be put in place to make matters much clearer for all parties. 

Currently a property owner with a UK portfolio could have the exact same property in one location which requires licencing and in the next county (let alone Country!) no licencing is required - this cannot make sense, but it’s a good starting point.

Dealing with property insurers on a daily basis, it is obvious than many are equally unclear of the licencing process. They absolutely understand that, where licencing is required, failure to obtain a licence can result in prosecution, but generally not the wider consistency issues. 

This can create problems for property owners looking to insurer larger portfolios where not all properties require licencing and I would suggest Landlords review requirement carefully with your insurance advisor before accepting cover. 

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Insync specialises in all areas of property cover, unlike other players, we LOVE HMO Insurance and provide a number of specialist policies which will allow Landlords to purchase cover at competitive prices.  Polices are approved by local authorities for licencing purposes and certificates are available instantly to confirm cover.

If you are a frustrated Landlord looking for HMO cover you can request a quotation online via our website.  Alternatively, why not book a FREE review with one of our expert Gurus who can help you through the maze to ensure you get the right level of cover, at the right price.

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About the Author

Jon Norman

I’m passionate about family, sport, technology and business.

In fact, I have always been fascinated by business, whether it was running the school tuck-shop or my Saturday job in the local store, I was always looking for ways to improve or view things differently.

I have enjoyed an amazing career fast approaching 25 years in the insurance industry, which has given me real insight into the challenges and opportunities faced by SME businesses in today’s ever-evolving marketplace.

I co-founded Insync Insurance, to offer companies a new way to buy and manage their business insurance. A synergy of digital servicing and personal expertise - utilising the latest technology to enhance relationships, not to replace them.