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"I pay my premium surely it's my insurer's job to manage risk"?

March 4, 2009 12:04 PM

The protection of assets against loss, damage and destruction and the continuity of rental income have always been of significant importance to property investors.

Traditionally there has been a reliance on managing agents and property managers coupled with insurers' relatively infrequent surveys to manage risk, and recommend improvements.

Although not wrong there are a number of shortcomings in this approach:

Insurers primarily undertake their surveys for their own purposes (reinsurance, estimated maximum loss calculations, checking sprinkler systems still qualify for reduced ratings etc) and rarely make their full report available for clients.

Insurers issue a list of risk improvements but these will usually be limited in their usefulness in terms of a comprehensive client driven risk management programme since they will more often than not be focussed purely on fire risks and will not usually provide comments on the management of other risks such as liability, engineering, business continuity and reputation.

Often their site visits are based on an annual timetable commencing at renewal and therefore they see each property at a similar time of year thus missing seasonal variations in the risk profile of properties.

Most insurers focus on the physical aspects of risk and whilst significant we feel it is also critically important to review wider risk management aspects such as procedures, systems, documentation, training etc.

I believe that an insurer survey every, at best 1, but more likely every 2 or 3 years is not really managing the risk and this is something which should be done, and should be evidenced as having been done, on a day to day basis, 24/7.

Managing agents and on-site property managers might then seek to take this role on but it is something which is not usually a core part of their offering and in my experience they do not usually have the focus on risk, the training or the systems to adequately meet standards of best practice.

Why is this more important now?

The list of concerns, issues and topics which property investors need to respond to is constantly expanding and this is no less the case within the area of risk management where there now needs to be added focus on subjects such as:

Protecting brand and avoiding damage to reputation.
Demonstrating added value and peer group differentiation to occupiers and prospective occupiers.
Health and safety and the management of liability risks to avoid Corporate Manslaughter prosecutions with the added huge financial penalties now available to courts.
Other additional legislative requirements such as fire risk assessments and asbestos registers.
Possible increased voids due to occupier bankruptcies requiring improved risk management techniques to satisfy insurer's requirements.
Climate change as a risk
The possibility of the insurance market hardening due to the current economic climate with insurers requiring clients to demonstrate that they have a wider structure and a more proactive approach to the management of risk so as to reduce claims levels or maintain them where they are at acceptable levels.

We anticipated these changes some time ago and recognised the significance of a number of these issues to the successful management of real estate investment portfolios and the impact they might have making a few investments in risk management for our clients:-

I joined the JLT team, formally a leading risk manager within the sector with almost 40 years experience working for a pension fund property investor.
I have devised a framework for a comprehensive risk and safety management strategy which encapsulates site audits which are prioritised to address all of the shortcomings mentioned above.
We have purchased rights to a market leading web based real estate risk and safety management IT system which can be made available to clients and their managing agents/property managers.
Both this IT system and the risk management strategy referred to above are modular and are capable of modification to meet the requirements and priorities of each client.

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