Construction cover skyrockets amid COVID-19

The construction insurance market is growing increasingly distressed as already rising premiums see further hikes as a result of COVID-19. This is the warning from Mactavish, which is urging construction companies to be vigilant through upcoming insurance renewals as it foresees considerable erosion in the quality and extent of cover.

Further, altered risk profiles as a result of the pandemic could mean current policies may not pay out in the event of a claim. This problem is intensified for projects in which various contractors and subcontractors, each with their own unique risk exposures, have sourced coverage independently – subject to separate terms and obligations.

Another major risk, which it says is almost unique to the construction sector, is that new insurance coverage restrictions can suddenly place firms in breach of commercial contracts that form the basis of existing projects.

Bruce Hepburn, CEO, Mactavish said: “Some of these problems are also affecting other sectors, but there are two factors that make them particularly challenging for construction companies. The first is the difficulties posed to the sector by the end of lockdown and return to work, which are far from straightforward on active construction sites. The second is the way in which commercial contracts create a complex web of liabilities and obligations across contractors, sub-contractors and other elements of the supply chain.

“Managing multiple overlapping policies while insurers are changing their terms and exclusions on a frequent basis is akin to playing a never-ending game of 3-D chess. The sheer complexity of the task means that errors are almost inevitable and, in an increasingly tough claims environment, there will be more disputes down the line.

How insurance buyers can address the problem

Mactavish advises construction firms to start from the ground-up, reflecting on their insurance programmes and developing a robust understanding of the key scenarios they want to be covered and the relevant structures of project and parties involved. All stakeholders must understand the coverage that is contractually required, and there should be a means through which they can communicate and collaborate on coverage developments and concerns. This, it says, is crucial where coverage changes might place a firm in breach of contract, or where additional disclosure obligations under the policy are likely to be required to maintain cover. Where there are rights of subrogation, firms should designate responsibility for overseeing the validity of the underlying policies.

Marketing your risk effectively in the hard market will also improve insurers’ understanding of your exposures. Developing a bespoke risk prospectus will help ensure that insurers will not view your risk as a commodity or sell you a standard commoditised policy, and can lead to improved, reliable coverage at a more competitive rate.

Image: BSI

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