The best bit of advice we can give our clients in the construction industry and others purchasing insurance is don’t get caught up in the trap of thinking insurance is a game of getting the cheapest rate!
It pains me when I see the extent to which prospects will go to, to reduce their premiums just to save a bit of money. Being underinsured is not only jeopardising your company but it is also putting your clients at risk.
It is so important when taken out a policy that first of all you go to a specialist in the sector such as Construction Insurance and secondly, that you truly understand what you are actually purchasing and how that insurance document will work for you at point of claim.
An Example of a Situation in the Construction Industry
We have property developers and building contractors coming to us on a daily basis who do not fully understand the insurance requirements. They often think they will only need a contract works policy when doing a new build for a client or for their own company, and I’d probably say half have not even heard of contractors all risk insurance before or contract works insurance .
Why I ask, why would you not want this? Well they say, I have public liability insurance and the contractors I use also have their own insurances, so why would I need it? Or they might say, no its fine I only need public liability insurance as that will cover me. Unfortunately, that’s often not adequate cover.
Take for example a situation where you are building a new build house with a timber frame structure. This house has double the chance of going up in smoke than a traditional brick block property, therefore what would happen if it burns down? You haven’t damaged any third party property (which is public liability) but all you have damaged is the contract that you are working on. The penny sometimes drops, but some still believe that their public liability insurance would cover this … WRONG!
Public liability insurance would pick up damage to third party property, but you haven’t damaged any third party property as this is a new structure. It’s your contract, so why would insurers pay. Well, they wouldn’t of course. All of a sudden this short cut, this cheaper option doesn’t look so good now! In fact in this instance, contractors combined insurance would have provided the necessary cover, or an extension to the liabilities like contract works or contractors all risk insurance.
The Consequence of Under Insuring in the Construction Industry
The consequence once it is all burnt down. You don’t have cover as you hunted around for the cheapest and most ineffective piece of paper and now you have a huge bill on your hands as you are half way through the project and have to start again, with your client breathing down your neck of course. Oh no … hang on, I do not have the funds to rebuild to where we were, leaving one option, bankruptcy, liquidation and leaving your client in turmoil as they now have a half finished house and have lost all of their money as you weren’t insured correctly.
The last two almost sound like an easy way out once all has gone wrong, but that is so far from the truth. No insurer takes kindly to dissolved companies and liquidations with many not quoting, therefore making it virtually impossible to get insurance unless you pay double the money for what should have been the correct policy in the 1st place.
So, let us rewind all the way back to the beginning and start off with a plan. You are doing a new build development and need insurance for it, you are a specialist property developer or a building contractor needling the right insurance. The first step should be finding a Construction insurance specialist, like Construction Insure and having a conversation with someone who understands your industry and insures likeminded people / companies time and time again. Specialist companies who have spent years learning what you need to protect your business.
You must make sure everything about your works / the job is laid out, even if you are getting other contractors in to carry out specialist works like underpinning / basements / demolition / roofing / scaffolding piling etc .
Make sure you understand what classifies as an employee, what classifies as a labour only sub-contractor and what classifies as a bona fide sub-contractor. Make sure if you have any high-risk element to your trade i.e. demolition, asbestos, piling etc that this is all declared. You cannot be afraid to declare due to premium, its’s just not worth it when things go wrong. The amount of money you pay on insurance must be part of your tender and factored in. It’s the same as any other cost.
Why do Insurers Need to know if you are Using Bona Fide Subcontractors?
This moves us onto why do you need to notify insurers if you are using bona fide sub-contractors, as they all have their own insurances, so where is the risk, what could go wrong, why do we need to notify ?
The giveaway answer to this is as previously mentioned, the majority of main contractors don’t insure themselves properly, which leaves little hope for insurers when they hear you are using high risk trades as bona fides.
At Construction Insure, we will pin your ears back and get all the specifics about the works you carry out. We will ask, do you use any Bona fide sub-contractors and the normal answer to this will be yes. We are not asking this question to be nosey but asking so we can assess the risk and see what liability there might be if something goes wrong.
A good example here is a main contractor doing a full refurb and basement dig. The main contractor has set up a Contractors Combined Insurance for his building company, which consist of liabilities / contract works and plant cover and has set his depth as 1 metre. But they have given no mention of basement works which will be carried out to 3m deep via a Bona fide. The basement contractor comes in does a dig and this results in land movement of both the clients house and the neighbouring property.
Big issues here, but all should be ok is the thinking of the main contractor, not my fault and this will go under the basement contractor’s insurance. The Basement contractor unfortunately has only disclosed himself to his insurance company as a groundworker and has not arranged insurance for new dig basements or basement extensions. Therefore, his insurers have declined to pay out. The main contractor has an initial shock but then thinks, that is ok, my insurers will pick up the claim.
Now yes this would be the case usually, but not in this instance as the main contractor has not disclosed to his insurers that he firstly, will be doing basement works as part of an overall contract and using a bona fide sub-contractor, but secondly, the element of depth that they would be working at is 3m and not 1m.
Due to this non-disclosure the insurer states that if they had of known that basement works were going to be carried out, they would never have quoted for the risk in the 1st place. This is terrible news for the contractor as it leaves him with no insurance to fall back on! The result of this means either the contractor will have to pay to rectify from his own funds or be forced into bankruptcy.
This for the client is again devastating news as it could mean that they have lost of their money as they will be the ones who must rectify the whole situation. It really is a terrible situation, but one we hear of time again due to contractors either not being educated well enough when purchasing their insurance by the insurer/broker. or the contractor turning a blind eye and just wanting a cheap policy.
How to Make Sure you Have the Correct Construction Insurance Cover in Place
The first point of call is to look out for a specialist in your industry. You are the construction sector, so you need to deal with construction brokers who specialise in the industry. who have the best rates and will be able to source you the best cover. At construction insure we focus on the construction industry and can arrange cover from contractors insurance to legal indemnities to motor fleet insurance. We understand the covers required and we understand what you will need to keep your company and your projects protected.
Unfortunately, there are a lot of big named advertisers out there who state they do business insurance (note this is not construction insurance) and are the best for liability insurance. Unfortunately, these are marketing campaigns, and you end up in the hands of a call centre with a non-specialist who will sell you a policy which is not fit for purpose.
The other danger is a friendly recommendation from a colleague in the trade. Again, they might not be insured adequately, and they might be handing you the number of an insurer/ broker who aren’t specialists, and you end up again with the wrong construction insurance for you.
It goes back to the point of go to a Construction Insurance specialist like Construction Insure, who will not make mistakes, will protect your company and your clients assets and get it right, meaning peace of mind, just in case the worst case does happen.
Take pride and understand what you have purchased. Never think you have just brought a piece of paper. Pin your brokers ears back and make sure you are covered for every eventuality and once you have done this you are prepared to face your clients with pride and be one step ahead of the game.
The Right Insurance can Help you Win Contracts
When you tender lay your insurance policy on the table and explain to the client all the levels of cover you have and educate them like you have been educated. This is an incredibly powerful tool as what you are doing, is preparing your client for your competition to walk through the door. Because you’ve educated and discussed insurance risk the client will not only be delighted that you have taken so much care in protecting you company and themselves, but they will then also demand to see this of your competitors.
What we see happening quite often is contractors coming to us asking last minute for a new insurance policy as theirs’s is not good enough and they need to put it in to tender asap. This is not good as what will happen is that suddenly, they produce a new policy document to their client who can see the start and end dates. A client will think, hang on we obviously are not dealing with a reputable company here as this has only just been produced.
Call centres, comparison sites, non-specialist, these are all warning sites that you are not approaching the right company. You need to be educated when it comes to insurance and the only companies that can do this are the ones who deal with what you need day in day out. Property developer’s insurance, contractor’s insurance, fleets insurance, contractors all risk insurance and legal identity insurance all should be simple policies to place when falling into the right hands.
Do not be afraid to seek the right advice, make sure you do as, as you can see if you do not it could be the difference to your company succeeding or not. There is not a wealth of construction brokers out there, but they are out there, and they are there to help. It is a complex industry when it comes to insurance which is why all areas of cover need to be fully explained.
Why Construction Insure?
At Construction Insure we thrive on helping all of our Contractors and making sure they fully understand that what they have brought from us is fit for purpose, and when they walk away they have a thorough understanding of what they have purchased and how it will protect them in the event of a claim. We also stress the point that at any time during the course they have a contract that might fall outside of their insurance parameters to call us and make sure the project is discussed in full, just in case we can see an area that they might not be covered or where we can increase cover to fulfil a contract.
At construction insure our focus is protecting our clients in the construction sector. So get in touch today to discuss your requirements with one of our knowledgeable and experienced team.