CONTRIBUTORSElite AgentOPINION

COVID-19: Keeping up with changes to investment property insurance

Last year was a bumpy ride for the property industry and the rollercoaster is continuing. Landlords and agents have had to keep on top of the evolving market and adapt to the changes. EBM RentCover managing director Sharon Fox-Slater says many of these changes impact on insurance cover too.

When the year started, most of us were hoping the disruption we lived through in 2020 would come to an end.

But the first six months of 2021 has proved to be another turbulent time for real estate and especially for the investment property market. While there have been challenges, there have been opportunities too – and many of the changes have had implications for landlord insurance.

End of the eviction moratoriums

Back in March 2020, as the economic impacts of the pandemic began to bite, the Commonwealth Government announced a six-month moratorium on evictions if tenants could not pay their rent due to COVID-19.

The states and territories established their own programs with legislation and relief packages. In most jurisdictions, the moratoriums were extended beyond the six months and most had ceased by the end of March this year (a 60-day moratorium was re-introduced in NSW on 13 July).

The moratorium on evictions also had ramifications for the landlord insurance industry. With moratoriums in place, landlords were unable to claim for rental losses where tenants could not pay because of COVID-19 (depending on the state/territory, tenants could generally still be evicted for other reasons).

As the legal eviction process must be completed before a claim can be made, policyholders and insurers were left in limbo.

Now that most moratoriums have ended, landlords can follow the normal eviction process (e.g. issuing breach and termination notices) and then submit a claim for loss of rent if their policy covers this.

It should be noted, if moratoriums are reintroduced in a state, EBM RentCover policyholders must wait until they can follow the proper legal eviction process before submitting a claim for loss of rent. This is so we can determine the full extent of the loss. 

Continuing impacts of COVID-19 restrictions

Life as we knew it hasn’t resumed. Lockdowns, social distancing and travel restrictions still affect our day-to-day lives and also how rentals are managed.

Agents have been quick to adapt the way they work and adopt new technologies to help manage investment properties – conducting virtual tours and inspections and using all manner of apps and online tools to streamline the processes. 

Landlord insurers have also had to adapt. Most insurance providers have had to rethink what products they offer and what risks they can cover.

To make sure they could support their existing policyholders, most – EBM RentCover included – had little choice but to withdraw products from the market or embargo sections of cover.

But we did not pull out of the market all together, stop offering any policies, or prevent existing policyholders from renewing with the same level of protection.

Rental market favours landlords

It has not all been bad news for landlords and agents. In many locations, this year has been a stellar one for vacancies, rental prices and yields.

Demand for rentals is far outstripping supply. The national capital city vacancy rate has been hovering just under two per cent so far this year – toppling to 1.7 per cent in June to reach its lowest level in a decade, according to SQM Research.

As a result, most rents have also risen. In June, national rental rates were up 6.6 per cent over the year – the highest annual growth in dwelling rents since January 2009, according to CoreLogic.

Most governments implemented a ban on rent rises but that has largely ended and landlords are able to review rents (in line with legislation of course). 

While the market is favouring landlords, it is not such good news for tenants.

And if relations get a little strained (for example, over rent increases), there is a risk of rents not being paid or damage to the property. If something does happen, landlords who have insurance that covers tenant-related issues have a safety net.

Demand for rentals outside of the cities

One of the big impacts of COVID-19 has been increasing demand for regional properties.

As a result, the annual growth rate of combined regional dwelling values is currently more than twice that of capital cities.

Regional rent values have increased almost three times as much as the capital city markets and regional gross yields are sitting about 4.5 per cent, according to CoreLogic.

Demand has been especially high for homes that are in sea-change and tree-change locations. Rents are surging almost 50 per cent this year in some areas, according to Domain. And these ‘lifestyle regions’ are likely places for people to have holiday homes.

Given the popularity of rentals in these destinations, owners may be looking to tap into the demand and become landlords. Whether the owner looks to offer their home as a short-term rental or on a fixed lease, they need to have the right insurance to protect their investment.

And if you have landlords who are currently renting their holiday home on either basis and want to switch to the other, they will need to switch their insurance cover too – as there are different risks, and therefore different things covered, depending on the type of letting arrangement.  

Return of investors

Economic uncertainty threw cold water on a lot of people looking to enter the investment property market last year – but that is turning around.

ABS statistics show that investors are returning to the home loan market at quite a pace.

In May, investor loans were up more than 13 per cent and investors accounted for 28 per cent of all new housing loans.

REA Group also noted that investor inquiry is up 47 per cent and CoreLogic’s figures revealed the value of investor loans has increased 48 per cent in the past six months.

With investment property regaining its allure, more people are likely to become landlords in the year ahead. Whether investors are adding to their portfolio or buying their first rental, making sure the investment is properly protected by the right insurance is important.

Agents can play a crucial role in helping their clients protect their investment – not only by expertly managing the property but through insurance. Depending on the status you hold with the landlord insurance provider (referrer, distributor or corporate authorised representative) you can let owners know cover is available through to arranging a policy. 

So although some things change – and keep changing – the value of landlord insurance is clear. 

Every investor – and their agent – wants a secure investment and reliable tenants. But not everything always goes to plan. And some events cannot be controlled. What can be controlled is whether investment property owners have landlord insurance.  

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Sharon Fox-Slater

Sharon Fox-Slater is the Managing Director of EBM RentCover, which protects more than 150,000 rental properties across Australia. For more info, visit RentCover.com.au.