Why can’t I get insurance for social housing?

It’s becoming more common for landlords to rent their houses to social housing providers. It can however, be difficult to get residential house insurance cover for these properties.

Standard residential house insurance doesn’t fit

There’s a few reasons a domestic house insurance policy isn’t well suited for houses under a state leasing organisation like Kāinga Ora / Housing New Zealand.

Firstly, it’s a commercial lease arrangement and not a traditional residential rental.   In addition, under a domestic policy, you pay a levy to the government Earthquake Commission (EQC) that covers a portion of the house for natural disasters, as long as it meets their definition of a ‘home‘. If tenants are staying at the property for less than 28 days (common with emergency housing) or its a commercial lease, the house is unlikely to meet the EQC’s requirements. This means you’ll pay hundreds in levies per year that may not give you any extra cover.

Under a typical domestic policy, there are also landlord obligations that need to be met by landlord’s in order to have cover for tenant risks like malicious damage. When a third party like Kāinga Ora manages the tenancy, they take the brunt of the tenancy responsibilities. This means that the landlord obligations under a domestic insurance policy are unlikely to be met. Whilst Kāinga Ora may do tenant vetting; reference checks and inspections, it’s out of the control of the landlord who won’t have any record to prove they are doing vetting tenants and ultimately adhering to landlord obligations.

Some things to consider

Kāinga Ora’s policy for inspections is at least once each year. They may do more than one per year, but there is no promise or legal requirement and most houses are only checked once a year, or when there’s a tenant change. This has some disparity to a standard residential agreement where landlords are required to do inspections every three months (or at least four times a year).

Because of a lack of inspections alone, a high number of claims would be declined because the obligations on the policy are not being met. Insurance companies don’t want to have this ugly conversation with customers, so often take a hard line in covering these rentals in the first place.

Why else are insurance companies less willing to provide cover?

When there are troublesome tenants, it’s difficult for Kāinga Ora to have a solution and past experience shows these tenants tend to stay around. There have not been any evictions from Kāinga Ora houses in any of the last three years despite having to relocate 159 tenancies due to anti-social behaviour in the last year alone. There are well-publicised media reports that have circulated the news about property damage.

Insurance companies themselves have reported higher frequencies of claims, which may be explained in part because of the differences in inspections and landlord obligations compared to a typical insurance policy.

Things we are seeing

There’s many providers of state tenanting and each can have different details in their agreements. Some new agreements allow landlords to be more involved with tenant vetting and inspections of the property. However, most remain set up for long-standing tenancy periods where the authority of the landlord is limited. For example, under most agreements landlords would not have the right to evict a tenant even under conditions that would make it possible under a standard residential tenancy.

This responsibility would be on the leasing organisation; who on historical rates, have not typically evicted troublesome tenants.

Complicating clauses

Leasing organisation are often not suited for cover under a standard residential cover simply because of clauses that are included in their agreements.

Under most there are items that say the property will be repaired to its prior state, on the condition that the landlord must have insurance cover. They often require that the landlord needs to first lodge a claim with their insurance company before they seek recovery or repairs from the leasing organisation.

So, what’s the appetite?

Because there is essentially a third-party commercial organisation that leases the property and takes large control of it, insurance companies have tended to cover these set-ups under commercial insurance policies. These are more suited as they do not need to meet the EQC’s definition of a ‘home’,  as no EQC levies apply to commercial cover.

Given the more broader scope of cover under a commercial property, premiums do tend to be higher. The average premium under a commercial policy through Rosser via Lloyds of London is said to be approx $5,000.

To make sure you are properly covered with a suitable policy, it may be worth paying up to get a commercial policy if you decide to hand the keys over to a state leasing organisation.