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We wrote recently about the effects of the hardening market when it comes to placing contract works and associated buildings insurance. Missed it?
In this new follow-up piece, we’re taking a closer look at the impact this hardening market has on a Brokerage’s existing business.
We talked previously about upwards pressure on rates and a general contraction of capacity and appetite. We are starting to see this pattern hold true in existing policies where extensions and adjustments are required too.
We have traditionally been fairly relaxed about collecting additional premium under the Contract Works section of our products; but are now requiring that additional premium is collected under this section when the project is experiencing significant delay. That means that the premiums we will be asking your clients to pay for extensions will appear normal when delays are short - but if the project drags on, additional cover will start to look quite a bit more expensive than you’ve been used to in the past.
Whilst we have been pretty generous in our provisions for Covid delays, we are over 12 months into this experience and are now taking the view that renovators need to be factoring in allowances for Covid delays from the beginning. In the past, we have been more willing to accommodate projects which majorly overrun, and have generally allowed them extensions for significant periods beyond the originally projected completion date. This is now changing.
Whilst it is known and expected that most renovation projects will experience an overrun, insurers are now much less tolerant of projects where multiple extensions covering long periods of time are requested. It is becoming harder to persuade capacity to continue providing extensions for cases like this - and we expect that we will be having that ‘this is the last extension we are prepared to offer’ conversation much sooner.
Our strong advice to you is to have a robust conversation with your client at an early stage around the policy duration they request. Even in normal times, here at Renovation Underwriting we see approximately 85% of our policies require extensions. The reasons for this include:
- Contractors over promising and under delivering
- Clients changing their mind
- Architects using provisional sums
- Availability of materials
- Difficult weather conditions.
Renovators need to be more realistic, particularly in the post-Covid, post-Brexit world where supply chains are interrupted, and sites need to be run on a more restrictive basis. Our advice? Suggest adding 25% to the policy period at the outset. Whilst the initial premium will be a bit higher, it’s likely that the client will spend less overall, and it becomes more likely that the insurer will be prepared to stick with them until the project is completed. Likewise if Works do finish on time and request a return premium, we’ll be happy to give one.
A hardening market certainly affects existing Broker business as well as future policies – and our Underwriting team is always available to speak directly to advise further. Just get in touch to book a call.
Read further background on this issue and understand what it means for our sector in part 1 of our Hard Market communications.