Members must note industry brokers and insurers that the condition of the PII market is currently in a ‘hard market cycle’ (i.e. reduced capacity, conditions are challenging). We understand that this challenging phase of the market could go on for the next 12-18 months. With the addition of COVID-19 this may exacerbate the situation.
What areas are becoming the most challenging for Valuers PII?
We understand from brokers and insurers, as market conditions continue to harden, the following are areas where challenges are faced in securing appropriate PII coverage:
- Development Valuations for lending purposes – Insurers extremely cautious in writing risks with large concentration (or high value) Development Valuations. Some Insurers are looking to introduce Sublimits of coverage for this work (trending towards $500,000 aggregate coverage), LVR restrictions (generally ranging from 65% or lower) or total exclusions.
- High concentration of Non-Bank lender work – Insurers also extremely cautious in writing risks with high concentration of Non-Bank lender work. They may look to introduce LVR restrictions (ranging depending on Insurer, however average 70%) or exclusions.
- High concentration of high-end valuations for lending purposes (heavily dependent on risk profile) – Can pose challenges in securing limits above $5m.
FOUR practical steps you should undertake if you have a business profile which fits within any of the above:
- Start talking to your broker earlier than normal about the renewing your PII – do not leave this to the last minute
This will assist you to get an understanding of their strategy for your renewal and perceived challenges which you may face. The renewal and quotation process can often require multiple negotiation points, with overseas sign–off required in some cases.
- Explaining your business model, clients and business risk
You may need to explain in more detail: your business model; your clients (e.g. lenders who may not be banks); your risk exposure and the risk controls you have in place to manage them; the type of work you do, including loan/borrower/lender profile.
- Be prepared to provide more detailed information than normal – Gaps in information may get filled with premium or restrictions in cover
Because of the perceived higher nature of risk, renewals will require more than just a proposal form. The levels of information requested by your insurer or broker about past valuation jobs is increasing and becoming very onerous for clients.
Examples of additional information that may be requested by your Insurer include:
Development Work – Aim to have a three year breakdown of work in this area (i.e. location, value, description of job, lender). Furthermore, if you are aware of the status of the project (i.e. all sold, pending sale, construction did not proceed), include this where possible. Identifying where a Development valuation has been de-risked will greatly assist the process.
Information on your Clients – Look to have data and an understanding on your work for each lender. Ideally, try and have a breakdown of fee revenue for each Lender, particularly non-Bank lenders. Note that Insurers may look closer at Non-Bank Lender information.
- Consider reviewing your business model
You may need to look at your business model to review your work and client base mix and risk you are taking – is it appropriate? What options do you have to change your business model?
If you receive any new limitations on your renewed PII, please remember to engage early with your clients, CoreLogic, and any other relevant stakeholders.
APIV Scheme Reminder – Foreign Insurer
Please note that the APIV Scheme Insurance Standards will be satisfied where the a contract of insurance is placed with an unauthorised foreign insurer in circumstances where an Australian insurance broker certifies in writing that the risk insured under that contract cannot reasonably be placed with an Australian insurer.
However, the policy must still meet the minimum insurance standards set out under Appendix B of the APIV Insurance Standards.
- If you choose to not renew our PII policy, do you still benefit from the APIV Scheme?
No. It is a requirement of the APIV Scheme that you hold a compliant PII policy for the duration of your Membership, in accordance with Appendix B of the APIV Insurance Standards.
API CPV or RPV Membership
Please be aware under the API Membership policy, if you hold a CPV or RPV certification and conduct real property valuation within Australia, it is a requirement that you become a Member of the APIV Scheme unless an exemption is granted from the APIV team.
Posted on December 23, 2020