UK property market update; a changing risk picture

Macroeconomic challenges and concerns about climate change and severe weather patterns, as well as the need for companies to continue the drive towards net zero, are continuing to shape the dynamics of the UK property insurance market.

The UK property insurance market is currently in a fairly stable position, with rates broadly reflecting underlying risks. But the claims inflation that was seen in 2023 is likely to continue to have an effect, although there are signs in several regional economies that inflation is beginning to come down.

Increased geopolitical uncertainty, however, fueled by the conflicts between Russia and Ukraine and Israel and Hamas, will likely mean continued macroeconomic volatility this year. And these potential economic fluctuations, coupled with the fact that there are numerous elections taking place around the world over the course of 2024 – not least in the UK itself, will add to a degree of concern for the property sector.

Supply chains for many raw materials and goods, already affected by the Ukraine war and the hangover from the Covid-19 pandemic, are experiencing further shocks as the result of ships being attacked in the Red Sea off the coast of Yemen. Many shippers have been forced to re-route consignments, meaning supplies are taking longer to arrive at their destinations.

This could mean a lack of availability of certain materials, leading to projects being delayed or running over budget.

Against this backdrop, the adequacy of property valuations will continue to be a hot topic for property clients and their insurers. It is vital that property clients continue to challenge themselves on valuations, to ensure that they don’t find themselves under insured.

Climate concerns, shifting exposures

The recent severe weather across the UK has served as a reminder of the risks posed by a changing climate and potential weather-related losses. The increased frequency and severity of unmodeled catastrophe events will continue to be a challenge in the months and years to come.

This changing risk profile will mean that some buildings that previously would have been thought free from flood-risk, for example, may now have greater exposure. Infrastructure like the Thames Barrier – state of the art when it was built 40 years ago – may now no longer be fit for purpose.

In order to understand these changing exposures, both property companies and insurers are increasingly using technology to feed into risk assessment, understanding, engineering and underwriting.

At Sompo, for example, we have been trialing the use of aerial real-time imagery to examine risks like flood and fire. By overlaying this imagery with traditional models and maps, we can get a better picture of how risks are changing.

Our Ecosystem Tool, which we created in partnership with specialist insurtech companies, uses the Internet of Things (IoT) to help us provide customised, sustainable and creative insurance solutions, and enables our clients to make informed decisions and proactively manage risks.

Integrating IoT sensors into buildings enables water leaks to be detected and mitigated sooner, and prevent damage caused by the effects of freezing temperatures, for example. Structural sensors can be used to monitor buildings’ structural health and detect potential issues before they escalate, enabling risk managers to put in place risk prevention and mitigation measures.

The Ecosystem Tool also can be used to improve environmental risk, by using sensors and smart-grid technology to optimise energy consumption and predict potential power outages. And Smart Building Sensors can be used to monitor air quality, temperature and humidity to ensure conditions are optimal for goods being produced or stored and reduce energy waste.

Technology like sensors and computer-vision can also help clients to improve workplace safety by identifying hazards and recommending measures to reduce accidents.

Clients, too, increasingly are using technology such as sensors within their properties to gain insights into risks – often in real time.

The ESG picture

Our property clients, like those in other sectors – and like us – are acutely aware of the need to move towards a lower carbon economy and to integrate environmental, social and governance (ESG) principles into every area of the business. This means changes for us all.

Naturally, some of these changes will affect the risk profile of a building or property portfolio. There will be questions to be asked such as are roofs sufficiently strong to support solar panels or water-harvesting reservoirs? We need to explore whether there are fire risks associated with electric charging vehicle points being attached to buildings, or whether heat pumps pose a changed fire hazard compared with traditional heaters and boilers.

Here again, technology and data will be key to helping us understand the emerging risks, and opportunities, posed by new and prototypical methods of reducing the carbon footprint of properties.

This added dimension to the changing risk profile of property insurance in the UK will require us to continue to have good communication with our clients and work with them to understand the ways in which their risks will evolve as we all work towards the net-zero goal.