Estate Agents are generally engaged in the business of selling properties but they often are involved in the acquisition of property or land or the renting, letting or management of properties as well. Although estate agents initiate and manage the selling process, the legal side of the transaction is normally undertaken by solicitors.
Although the more traditional professions such as architects, surveyors, accountants and solicitors are required by their professional bodies to carry pI insurance, there is no such requirement for estate agents to maintain insurance, unless they are members of NAEA (The National Association of Estate Agents) or ARLA (The Association of Residential Letting Agents). However, due to the increasingly litigious nature of the home-buying process and the introduction of Home Information packs, estate agents are becoming more aware of the need for professional Indemnity Insurance.
Size of firm
This is mainly established in two ways, the number of partners/directors and staff andby the gross annual income of the firm.
Qualifications and experience
Insurers need to satisfy themselves that an estate agent is suitably qualified. As no formal training or qualifications are required to operate as an estate agent, insurers will be concerned with finding out if an individual is sufficiently experienced to carry out this work.
Most estate agents work in their local area, unless they are part of a chain. They build up local knowledge which makes for a more consistent analysis of market pricing. It would be a concern if an estate agent in Newcastle, for example, was marketing and selling properties in the South East unless they could show that they have adequate knowledge of the area.Top
The area in which agents work in will give an idea of average house values but details of the largest valued property sold will certainly be a factor when assessing risk. London based Estate Agents are generally expected to be dealing with higher value property than in the north, however, many parts of the country have pockets of high value property. The same error on the sale of a high value property can potentially result in a far more expensive claim. Furthermore, generally speaking, purchasers and sellers of high valued property can be more demanding as well as more litigious.
Type of work
Insurers need to know what type of work the estate agent is involved in and the split of annual income derived from each discipline
Since 14 December 2007 every home in England & Wales put on the market, no matter what size, must have a Home Information pack. It brings together information at the start of the process, such as a sale statement, local searches and evidence of title. The pack also includes an Energy performance Certificate that contains advice on how to cut CO2 emissions and fuel bills. Estate agents will usually only be involved in compiling the packs on behalf of clients when the local searches and legal aspects have been handled by a qualified professional, so this is considered to be low risk.
Does the practice carry out work for overseas clients? Insurers will give careful consideration to such work carried out abroad as it must allow for the local laws and regulations.
Examples of claims
Property Management - claim made by blind tenant who fell over collapsed wall, despite requests for managing agent to repair dilapidated wall. Claimant is claiming damages for personal injuries sustained.
Property Misdescription – A claim was made by purchaser of property, as property was detailed as having double glazing in estate agents’ particulars, but there was no double glazing. Claimant is claiming cost of installing double glazing
Letting Agency - Insured did not obtain a guarantor when letting property. Tenant began to pay rent late then defaulted on several payments. Landlord is pursuing the letting agent for the outstanding rent, as the tenant has disappeared.
Estate Agent - it was alleged that an Estate Agent purposely under-valued a property so a known acquaintance could acquire it for a discounted price. The seller became aware of the under-valuation of the property and pursued the estate agent for the loss of value in the sale price.
The National Association of Estate Agents (NAEA) is the leading professional body for estate agents. Membership and representation is for individuals rather than organisations. pI insurance is mandatory for principals, partners or directors but The NAEA has no specific requirements on minimum limits of Indemnity and Excesses but it does require a standard form of cover. The Association of Residential Letting Agents (ARLA) is a professional self-regulating body solely concerned with residential lettings. pI insurance is mandatory for all members. ARLA requires members to purchase limit of indemnity of £150,000 where fee income is less than £150,000. Where the income level exceeds £150,000 the minimum limit of indemnity purchased must be £500,000.
*Current as at April 2009, you should check with the Association for a fully up to date position
The presentation of your business to insurers is very important both in respect of the facts i.e. the things for which cover is required, and the way in which you do your business, both of which influence an insurer's perception of your business and the risk it poses to them.
We would always recommend that in addition to the proposal form you are asked to complete, you provide supporting documents with your proposal such as:
An insurance history listing all material changes to your business since you first had professional indemnity insurance. For example, mention any previous businesses for which you require cover. It is possible you may be asked for a claims history from the previous business or a copy of its last completed proposal form.Don't forget to include the names of any businesses with which you have merged, or any that you have acquired, as these will need historic cover. likewise you may have ceased to offer certain services for which cover is still required. Keep a written record of all requests for cover to be extended and any historic or material changes to your business. This information can be updated each year and provided as an addendum to the proposal. Any certification the business may have i.e. accreditation by a governing or standards council, is also well worth disclosing. Keep your presentation neat and tidy. Bear in mind that an untidy presentation may be construed as an untidy business. Allow yourself time to complete the presentation and remember that a hard copy always look better that a faxed one sent in at the last minute.The professional Indemnity Insurance market is relatively small so at the point of renewal, concentrate on asking only one or two specialist brokers to quote. Bombarding the market with requests can result in your proposal being locked out of some markets. Renewal is an ideal time to review your insurance requirements. As your business grows and your contract values increase, it is wise to consider what could go wrong and how much it may cost to settle a claim - and also cover the attendant legal costs. Some policy wordings provide a limit of indemnity with legal costs in addition to the limit. Others provide limits of indemnity which include the legal cost. However, the cost of litigation is high and can eat into the limit of indemnity provided if costs are inclusive.
Many professionals are obliged to carry pI by their professional bodies. Many of these bodies not only have specific requirements in respect of policy wording but also on the limits a professional must carry and the excesses they are allowed. Renewal is an opportune time to check your cover both in respect of your own requirements and those of your professional bodies.
Whilst we prefer to see a well presented proposal form and supporting documentation we recognise that savings in premium can be achieved via the cost effectiveness of internet based quote engines. We have an online quote engine which is designed to cater for the basic low to medium risk type estate agents which you will find on our main menu bar. Larger and more sophisticated businesses would possibly be better catered for via our proposal based broking service.
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