With the UK construction market slowly returning to form, the opportunities for insurers abound. However, there are concerns about the levels of claims and the cost of insurance is reported to be rising-¦
The Office of National Statistics recently reported that the construction industry in the UK had seen new work grow by a tiny 0.1% in recent times. But is this the whole story?
Tyrone Courtman, managing director in Duff & Phelps' restructuring advisory practice, says: "The 0.1% growth in new construction work has been largely driven by government-funded projects, with rises in output of infrastructure and public housing, and with a significant 2.2% fall in private commercial work.
"The construction sector has seen significant turbulence in recent years, with the liquidation of Carillion last year still having potential knock-on effects into this year."
However, the need for new homes and new buildings grows unabated, according to the Association of British Insurers (ABI).
"With government committing to building more than 300,000 homes a year by the mid-2020s, completing an in-depth review of building regulations and encouraging innovation through modern methods of construction, it is integral that the UK property insurance market articulates what good looks like," the association says.
The ABI also suggests that the way consumers behave and engage with insurance is changing, driven by digitalisation and consumer demands and needs. "With an evolving regulatory landscape, fast-paced technological change and innovation, insurers must continue to adapt to meet customers' demands," it notes.
CONSTRUCTION INSURANCE BY TYPE
1. Public liability insurance
Public liability (PL) insurance is a common type of business insurance that protects against liabilities for injury to third parties (non-employees) or their property. If someone works near other people and/or their property, which is basically anyone in construction, they should consider having PL insurance. This will ensure they are covered against any potential claims for damage to the person and/or their property.
2. Product liability Insurance
Product liability insurance protects against liability for injury to people or property arising from the products supplied, manufactured or even imported. If someone supplies, manufactures, adapts or imports any products used by other people, then they should consider this cover.
3. Employer liability insurance
Employer liability (EL) insurance protects against liabilities to employers for injuries or illness. If someone is an employer, EL insurance is compulsory. People may also want to look into EL insurance if they are building their own home. Injury to volunteers or subcontractors could spark a claim as an 'employer'.
4. Contractors all-risk insurance
Contractors all-risk (CAR) insurance protects against physical damage to works and site materials that someone was contracted to undertake. These types of losses are normally excluded under a regular public liability policy, although they may be sold together. If a contractor causes damage to a part of the property they were contracted to work on, standard PL insurance may not provide full coverage. However, a CAR policy would provide full coverage of the costs associated with rectifying the damage. All employers and contractors working on construction projects need this cover.
5. Professional indemnity insurance
Professional indemnity (PI) insurance protects against claims for loss or damages arising from professional negligence or negligent advice. If someone provides advice or holds design responsibility for a site, then they should consider PI insurance.
6. Structural warranty
A structural warranty provides building owners with 10 years of protection from 'latent defects' to the structure of a building. These are defects that occur during the build period but are not discovered until after completion. Structural warranties are usually bought by the builder or developer, but the warranty itself will provide cover for the person who purchases the completed building.
However, the insurance market is reacting warily. Back in April, Mactavish reported that it expected premium costs for construction insurance to increase by 50%-100% across the board, with some firms facing a cost increase of three to five times later this year.
Rob Smart, technical director at Mactavish, says poor returns on construction PI mean some providers are pulling out. "This has supercharged the effects on pricing and capacity for those that remain," he adds.
Mactavish says it expects the hardest hit to be medium-sized main contractors and firms working on particularly complex jobs.
Broker JLT agrees, saying: "Costs are escalating due to ongoing volatility in the construction all-risks insurance market, making insurance harder (and more expensive) to place. As a consequence, claims are more likely to be disputed and, potentially, rejected. Tougher risk management measures could also be stipulated by insurers."
According to JLT, some $1bn of construction premium was placed globally in 2017. However, claims are an issue. In the UK, theft and vandalism on construction sites costs more than £1m a day, it says. Fire, of which 40% of incidents are deliberate, costs £400m and water damage upwards of £483m.
As JLT notes: "It's the eye-wateringly expensive restitution bill no contractor or developer wants on their books."
- Across the world, 2.3 million people die due to work-related accidents or diseases every year
- About 64% of all on-the-job fatalities in construction are due to the 'Fatal Four' hazards: falls, electrocution, being struck by an object, or being crushed
- Falls account for 39% of all construction deaths
- An estimated 651,279 deaths per year are reported globally from diseases related to hazardous materials in construction.