A gap in cover could be costly in the event of a claim and potentially threaten the future of the business – so how can you secure cover that suits your requirements and budget when faced with these market challenges?
What is happening in the construction insurance market?
Even before the COVID-19 pandemic period, the insurance market had been hardening due to a range of environmental, economic and political events, as well as ongoing regulatory updates. Similar to other industries, the construction sector has been impacted by these changes. Insurers and insurance markets respond to a tougher commercial environment by becoming more selective on the types of risks they choose to write. For construction companies, this has led to higher premiums, changes to the scope of policy wordings, and increases in the deductibles (or excesses) applied to insurance, at time of renewal. This trend looks set to continue throughout 2021, and potentially beyond.
Given the construction sector has always been particularly susceptible to market fluctuations, looking at insurance from a balance sheet perspective helps to identify and determine whether your current construction insurance arrangements will continue to meet your needs now, and in the future.
Securing appropriate levels of insurance cover
Scrutinising your insurance programme starts with developing a robust understanding of the key areas requiring cover. What are your company’s current activities? Consider all relevant structures of a project and the involved parties.
Look closely at the levels of cover required by your business now – as they may differ to when you last reviewed your insurance programme. A specialist insurance broker can help to identify gaps in cover as well as changes to your operations, this may change the way your insurance responds in the event of a claim. Scheduling time to speak with your broker is one way to confirm that your insurance policy offers adequate protection, and identify where exclusions and changes to the policy wording may apply, for example, tailored wordings for timber frames and modular buildings.
If COVID-19 has led you to make adjustments to the way you do business, we strongly recommend speaking with your broker to review your current insurance arrangements to confirm that your cover remains fit for purpose. During renewal preparations, please pay extra attention on the policy wording and the terms put forward by the insurer, to identify restrictions and/or exclusions that may be added.
What if you have a history of claims loss?
If you have a claims loss history, it is essential to demonstrate the risk management practices you have put in place to reduce the possibility of similar events reoccurring. Due to the challenges in negotiating cover in tougher market conditions, it is even more important in these circumstances to prepare this plan in plenty of time for renewal. A specialist construction broker can assist and guide on what is required so that you are fully prepared.
The risk of underinsurance (and non‑insurance)
If a claim were to be made against your business and you had a gap in cover which left you unprotected, it could cost you thousands of pounds. In a sector that traditionally operates on very low margins, can you be sure your business would recover? With the construction sector seeing more insolvencies in recent years than in many other UK sectors, this demonstrates the vulnerability of an industry reliant on having a healthy cash flow position.
For some contracts and projects, a minimum level of insurance may be stipulated as part of the supplier qualification criteria. Similarly you could inadvertently breach the requirements of an existing contract if you reduce the levels of cover than were agreed at the time of engagement. Therefore, it pays to check your policy wording to ensure it provides sufficient cover for existing activities and projects, while taking into consideration any future needs and expectations.
The benefits of speaking to a specialist
With a diverse range of construction insurance products and services available, it is advisable to seek the expertise of a specialist broker to help you find the most appropriate solution. If you need help with navigating the risks facing your business today, we would be delighted to help.
Conditions and limitations:-
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 03/02/21, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.