Insurers are placing new limitations on professional indemnity (PI) cover for property valuers. So what does this mean for the mortgage industry, and what are the options for valuation firms?
Despite the turbulence that hit New Zealand's real estate market in 2020, recent months have seen record volumes of property valuations nationwide. This trend has been partly driven by a combination of low interest rates and government incentives to boost residential construction and development.
Amid such unpredictable market conditions, it's more critical than ever for valuation firms to have the right levels of PI insurance. However, changes within the insurance market are making it harder for valuers to get the cover they need.
What are the current challenges?
Consolidation within the insurance industry and the impacts of the global pandemic on the economic environment has driven a decline in the level of PI cover available to New Zealand-based valuers. Reduced competition within the market has driven up premiums, with insurers also imposing tighter restrictions on their policies.
"We're seeing an increase in premiums to get sufficient coverage and an increase in excesses,” said Stacey Rottinger, CoreLogic's Head of Valuation Panel Management.
Lenders are also increasing their focus on the level of PI insurance valuation firms have. In most instances, they require firms to have a minimum level of $1 million in cover.
If a firm doesn't have the correct level of cover, it can be a concern for the lenders. This is especially so if the valuer hasn't engaged with the lender to discuss the level of cover they actually have and to get approval for the lesser amount.
"If lenders are wary of firms whose cover is reduced, they might not be willing to instruct them for full market valuations,” said Stacey. "This will have a flow-on effect to both the lenders and borrowers, as it will put pressure on the remaining firms to maintain agreed turnaround times.”
How can valuers navigate the changes?
First and foremost, Stacey says it's critical for valuation firms to follow the standards and guidelines issued by the property sector's governing bodies around PI insurance. Firms should also be aware of their insurance options – by engaging with their insurer or broker, gives them more time to try and negotiate secure a better deal.
"A lot of valuers don't realise they can negotiate the terms of their cover,” Stacey said. "By raising awareness, we're hoping it will put valuation firms on the front foot with their negotiations on the level of cover required.”
The key is for valuation firms to truly understand their own PI needs, and to know what they can ask for. This is why Stacey encourages all valuers to seek guidance and support for their PI negotiations.
"If valuers are having issues with their insurance, or they want to discuss the level of cover they require, they should reach out to their preferred associations and industry bodies to discuss” she said. "And if valuers are using the ValEx platform for submitting their valuations, it will also put them in a good position for their negotiations because of the platform's rigour around compliance and governance.