Posted on June 7, 2018
Recent reports suggest that housebuilding registrations are back to the levels seen prior to the 2007 financial crisis. In 2017, the National House-Building Council (NHBC) reported 161,000 units registered which, depending on the market share figures you read, equates to around 230,000 units in total registered last year. That figure is set to rise in 2018.
Alongside the recovery in residential construction has been the growth in the number of competitors to the NHBC. Choices available to property developers and housebuilders has increased from a handful of underwriting agents and insurers to, now, over 20 providers of new home warranties and related on-site technical services.
With greater choice comes greater competition. This can only be a good thing for those looking to sell properties which require mortgages, right? Well, not quite.
As the new home warranty market has fragmented, and the number of players has increased, there seems to have been a narrowing of approach with insurers significantly reigning back their offering of what used to be a fairly generic product.
Thinking about residential property development? Here are the top 5 considerations to bear in mind.
1. Do I have sufficient coverage? This is arguably the most important consideration and one that is often overlooked when choosing a provider. Insurers will ask for the total rebuild cost of a scheme but don’t assume this is the amount of cover you’re actually paying for. Maximum liability levels vary tremendously for New-Builds and Conversions and for individual units and whole sites.
2. Strength of the insurer. Is the insurer “rated”? Will they be around for the duration of the policy? For such a high value, “long-tail” insurance policy, always chose a “rated” insurer. Your broker can help you here. To demonstrate the point, on 8th May, Alpha/A/S Insurance became bankrupt leaving the LDI underwriter, CRL, in the difficult position of having to replace the insurer for thousands of policies at hugely inflated premiums for developers.
3. Conversions, refurbishments, permitted developments. Am I covered? Some insurers will simply not cover existing or retained elements. Others will offer “consequential loss” only. The balance between new works and existing elements is crucial in determining the value of the cover being offered and how that cover works in the event of a claim.
4. Terms and conditions. There has been a growing trend towards the reliance of insurance backed guarantees (IBGs) for certain parts of a build – particularly roofing and basements. Many insurers include these conditions within their initial terms but they are rarely focussed on until the end of the build when the building guarantee certificate is required. No IBG? No New Home Warranty.
5. On-Site technical inspections. An often overlooked consideration when securing building defects cover is that of working with the insurer throughout the build. Will the insurer add value through their site inspections or will the process be restrictive and cause unnecessary headaches and additional costs?
As with any purchase the bottom-line cost is only part of the consideration and, in the burgeoning latent defects insurance market, this has never been so relevant or important. What looks “too-good-to-be-true” probably is. Invest the time at the beginning, read the small print, ask questions and don’t just rely on what the salesperson tells you. Choose poorly and at best the experience will be disruptive and expensive. At worst you stand the chance of not being able to sell your property. To find out more about how Pii can help you select the right policy for your specific requirements, please get in touch with one of our team.
Brian Kilroy, Foxwood Building Guarantee, a specialist Latent Defects insurance broker and consultant with 18 years’ industry experience.
Steve Packer, Property Insurance Initiatives Limited, a real estate insurance broker with over 20 years’ experience.
Tel: 0203 058 2536