Luxury residential properties carry unique challenges. High-end construction materials, valuable contents such as fine art, heightened security needs, and the expectation of high standard alternative accommodation means any loss event can be costly.
Fortunately, sophisticated insurance solutions and proactive mitigation can help to minimise the risk.
Causes of loss in luxury properties
Like all buildings, luxury residential properties face a number of risks that could cause a loss. Many of these are exacerbated in the context of a luxury property, either due to the nature of the property itself, or its contents. Should a loss occur, the costs are likely to be significant.
Potential causes of loss include:
Escape of water – the most common cause of loss within the residential sector. For larger buildings, water can travel through flats to affect multiple properties. High-end materials and bespoke finishes can exacerbate this risk.
Basement flooding – another prominent issue, especially in London (opens a new window), where developers and owners are digging down to accommodate underground car parks, gyms, cinemas, data servers, and swimming pools.
Fire risks – a particular risk for residential properties where fire may arise from domestic use. Electric vehicles (EVs) and charging stations in on-site car parks can also increase the risk of fire, especially where damaged or incorrectly used.
High value contents – bespoke interior design, rare art, or unique motor vehicles are all commonplace in luxury residences. Should a loss occur, these items will be expensive (and in some cases, impossible) to replace.
Bespoke services – e.g. valet parking, where residents’ high value vehicles may suffer damage whist under the control of the property manager.
Alternative accommodation – an initial loss can lead to costly claims, including expensive hotel accommodation, often for several months (depending on the severity of repairs).
These risks may also be interrelated. For instance, a sprinkler system in response to a fire may cause water damage to contents, or damage electrical equipment elsewhere in the building – increasing the likelihood of further loss.
Insurance recommendations
Given the high potential cost of any loss, it’s crucial to secure appropriate insurance cover for any luxury residential property.
High levels of inflation, frequent extreme weather events and expensive alternative accommodation have all seen claims become more severe in recent years. Insurers have become more cautious when it comes to underwriting such properties. Premiums have increased and terms have become more restrictive. As a result, it may take more time to find adequate cover, so starting the process early is very likely to pay off.
Before issuing a quote, underwriters will request specific information about your property to assess its risk exposure. Showing evidence of effective risk management will make your risk more attractive for insurers, resulting in better policy terms and conditions.
Measures to mitigate insurer concerns include:
Leak detection and water management systems
Fire detection and sprinkler systems
Ensure any EV vehicles charging stations are thoroughly tested, and located away from potential sources of fire or water damage
Increased security and properly articulating this to insurers (e.g. when purchasing terrorism cover) to secure any premium discounts available
Robust procedures and controls for property management and maintenance
Rigorous staff training and employee support
Clear and detailed process for apartment refurbishment works and vetted contractor risk assessments
For the best chance of securing optimal terms, it may be wise to invite insurers to the building. This will give you an opportunity to demonstrate first-hand the positive safety and risk mitigation measures in the building, getting a more personal buy-in from the underwriters.
Please visit our Real Estate (opens a new window) page for more information, or contact your local Lockton representative.
