Despite ambitious targets from the new Government, the social housing sector continues to face financial uncertainty and escalating costs. Providers are therefore scrutinising their insurance portfolios, increasing policy deductibles to offset premium costs. However, this shift towards greater self-insurance brings with it some risks and the need for understanding of risk and claims is paramount.
The crisis in social housing
The current shortage of Social Housing is a problem which has been growing over the past decade and has now reached a critical tipping point.
Between April 2013 and April 2023, there was a net loss of more than 260,000 social homes owned by local authorities and housing associations, according to homelessness charity Shelter.
The new labour government has pledged to deliver 1.5m homes in England by 2029, yet providers have warned that these ambitious targets will not be met without significant additional funding. A recent letter to the Secretary of State for Housing, Communities and Local Government, signed by the National Housing Federation (NHF), which represents 600 housing associations, and the Local Government Association (LGA), warned of the dire straits facing the sector.
“Capped income, crippling cuts, unfunded new requirements and soaring costs have decimated housing association and council’s housing budgets. Rental income is 15% lower in real terms than in 2015, at the same time as we need to invest up to £50k on average in every social home over the next three decades to ensure they are safe, high quality and decarbonised. Without action, councils will face a £2.2bn black hole in their housing budgets by 2028.”
Compounding these pressures are the long term inflationary spikes in construction costs, material and labour expenses.
Resilience and sustainability
Local authorities also grappling with additional, unforeseen expenditures, such as flood damage clean-up and extensive repairs to buildings with structural issues like RAAC or defective cladding. The upcoming year mandates further investments, including the expansion of electric vehicle charging infrastructures to support burgeoning municipal fleets and a push for resilient rebuilding in flood-affected areas
Reviewing insurance portfolios
Amid these challenges, councils face limited financial options, having largely divested their housing stocks over the past two decades, which now precludes them from borrowing against these assets.
In response, many have begun a detailed review of their insurance portfolios, often opting to raise policy deductibles to mitigate year on year increases in premium costs.
Several councils have already acted, raising their insurance deductibles—sometimes as high as £1 million.
However, this move toward greater self-insurance is not without its risks, necessitating a deeper understanding of property risk management and claims handling. This strategy requires robust in-house expertise to manage increased self-insured retentions effectively, and any failure could lead to significant financial leakage.
For example, it’s essential for local authorities to check that their building stock is valued correctly for insurance purposes, and to mitigate any consequential losses arising from an insurance claim which could impact on their
ability to provide critical services.
In the instance of a claim, the way it’s dealt with can have a major impact on minimising cost and disruption, yet each claim is different and can require different knowledge and/or expertise.
We have worked on countless local authority losses, which underline some of these challenges. For instance, in one case of a primary school flood, the identification of a competent professional resource to oversee business continuity, including project management and the setup of temporary facilities, was vital. Similarly, another local authority faced a budget overrun when an interdepartmental dispute arose over the replacement of underground services at a secondary school, with costs soaring above its £250K insurance policy deductible.
To counter these, when there is the early appointment of independent expert resource the benefits become self-evident. For instance, a fire at a council-owned crematorium was resolved within seven weeks, rather than the anticipated three to six months, by engaging specialist project management and bypassing lengthy tender processes.
Ultimately, quick and proactive handling of insurance claims can significantly curtail direct costs and further expenditures, positively influencing the local authority’s insurance premiums and their internal pot of allocated self-insured funds.
Looking ahead
Looking ahead, local authorities must navigate this financial tightrope with care. Balancing cost containment with the need to maintain and improve vital services is no small feat, particularly when the stakes—community well-being and resilience—are so high.
When it comes to insurance, it’s a delicate act of bolstering self-insurance capabilities while maintaining the safeguards of comprehensive insurance coverage— yet it’s one that can have a major impact on the financial health and operational efficacy of local governance in these turbulent times.
