Understanding insurance for construction projects
Blake Morgan’s Construction Team had the pleasure of hosting the Developing Connections networking seminar on 7 October at its Southampton office, in partnership with Thomas Carroll, one of the UK’s leading insurance brokers.
Attendees heard from Blake Morgan’s Construction Business Group Head, Richard Wade in respect of market themes and Senior Associate, Natalie Taylor, on the Building Safety Act 2022 and the impact the cladding crisis has had on insurance. Greg Edwards from Thomas Carroll provided a helpful overview of insurance for construction projects, and an update from a broker’s perspective.
Market Themes
Richard Wade began the event by discussing some current themes in the construction industry, which include:
- fluctuating insurance market (softening and hardening with different market events);
- increasingly risk averse contractors; and
- move away from “any one claim” insurance cover.
Building Safety Act 2022 and Fire Safety
Natalie Taylor then reminded attendees that since the Grenfell Tower tragedy in 2017, fire safety has become a bigger concern for those in the construction industry, and the ensuing cladding crisis has had a significant impact on availability and terms of insurance. The key takeaways from her comments are:
- The importance of checking for fire safety exclusions in professional indemnity insurance. These are common in the market, and often not reflected on the broker’s certificate.
- Adopting recommendations of a PAS:9980 Fire Risk Assessment, and compliance with building regulations, will not necessarily lead to reasonable building insurance premiums. Insurers are in the business of assessing risk to the asset, not the risk to life (which is the focus of the building regulations and PAS:9980). Early engagement with insurers is key.
A broker’s perspective
Greg Edwards gave us some insight into the broker market, including the vast reduction in the number of brokers in the market, due to mergers and acquisitions over the last few years.
Some headline points from him were:
- First party insurance provides higher level of control over the project should anything go wrong, particularly given the high rate of contractor insolvencies in the construction industry. It is not easy to insure a project half way through, once a contractor becomes insolvent, so clients should consider taking control of this process.
- Performance Bonds are a helpful product in some instances, but it is important that the client knows who the ultimate insurer of that Bond is. If the ultimate insurer has not evidenced its ability to pay if a claim against the Bond is made, the Bond is a very expensive piece of paper.
- There remains a reluctance from insurers to provide cover for innovative solutions. Products like green concrete and timber frames may be helpful to fulfil sustainability needs, but insurance is not readily available.
- Again, early engagement of brokers is vital.
Key recommendations
- Speak to an insurance broker as soon as possible.
- Ensure the type and level of insurance cover is appropriate to the project and consider single project policies for more bespoke terms.
- Ensure that your building contract accurately reflects the insurance required for the project. JCT standard form clauses are not always appropriate and it is easier to make these changes at the beginning of a project, avoiding last minute amendments and delays to contract completion.
If you have any queries, please do not hesitate to contact our Construction Team.
If you would like to hear about our upcoming events, please sign up to our Developing Connections mailing list here.
Tags: Real Estate
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