As part of the tenant fee ban the Government have been told by the industry that the ban will result in agents going out of business and not having the money to repay deposits and rent they hold. The Government have agreed that to avoid this problem they should bring in mandatory Client Money Protection (CMP) insurance before the tenant fee ban takes effect. It is currently anticipated that both will come into force in April 2019. This may work because businesses adversely affected by the tenant fee ban will not instantly go out of business on the day the ban comes in but will more likely suffer problems after a number of months of trading without the tenant fee income.
The Ministry of Housing, Communities and Local Government have now said they want the CMP insurance to provide an unlimited level of cover. The trouble with this request is that many insurance providers may be hesitant to take on such “unlimited” risk. In practice it is not likely to be a risk for the vast majority of agents but it is enough to make the insurance industry nervous.
The requirements also require that deposits are also covered. This may have the effect of making custodial schemes more attractive if less money is held the risks may fall and with that the premiums.
Many smaller agent will be sole traders or small limited companies with the shareholder running the business. It is always difficult to insure against your own fraud and this increases the nervousness.
It is often said you can insure anything, but in practice this “unlimited” requirement could cause premiums to rise significantly. Ironically it may make it easier for smaller organisations to obtain the insurance as the effective maximum claim is more likely to be limited by the size of the portfolio.
PRSP are in discussions with CMP insurance providers to try and get the best possible deal for members. Although we have seen others advertising that agents should get the insurance now so that they are ready for the new law, in reality this simply means paying for something when you don’t need to yet (with the corresponding renewal coming around sooner!). Delaying a while also means that more companies will have had time to get products approved and so more choice will be available.