Project development is a lengthy process with complex insurance considerations

Construction buildings

Booming foreign markets have enabled some brokers to develop an international presence, while in the UK there have been fewer small infrastructure projects. However, the Olympics, Crossrail and other large developments have kept up high-end business levels. The London market remains a vital source of cover for heavy risks in both the public and private sectors at home and abroad, owing to the concentration of specialist insurers.

JCT Insurance Experts managing director Jenny Carter-Vaughan says: “For smaller projects under £10m we would be looking at the composites, but for anything above that, it’s really got to be placed in the Lloyd’s market. At the end of the day, it’s down to the size of the project and being more specialised at the high end.”

“You might have someone who’s happy to take the bottom five or 10 million - the lead insurer. Or you can look at it as a single project and just insure it as a whole. If it’s a private project that is going to take three years to build, you’ll put the insurance in place at the beginning, and then it isn’t going to have to be renewed on an annual basis. It could run for the duration of the entire project.”

Large public sector procurements inevitably take much longer to place in the market than private projects due to additional EU procurement rules, which brokers have to manage.

However, regarding private sector work, Carter-Vaughan adds: “With the larger projects, there are increased chances for delay, so the most important aspect is collecting all of the information to start off with. There are all sorts of niggly bits and pieces that can slow things down.”

PDF: The path to cover: Insurance distribution in construction and engineering

Changes in the UK market

Construction in the UK is in poor shape, with latest figures from Experian suggesting that, by the end of next year, the industry will have shrunk by 14% since 2007. This has had a significant impact on insurers and brokers.

The market has undergone a tightening up process, which has seen many insurers set lower inner limits for certain policy areas. For example, cover for unforeseen ground conditions was a staple aspect of construction policies when the market was stronger, but has now come down significantly. It is usually a surge in claims that spurs on these changes. For example, after several successive tunnel collapses in the 1990s the international tunnel code of practice was drawn up by engineers and insurers. Construction companies now must abide by it in order to obtain insurance.

“The market has a strong appetite, but if there are losses coming from a certain method or type of building, then either the market will withdraw from it, or impose certain restrictions,” says Gallagher Heath executive director Mike Hawkes.

Another significant factor in the market has been the growth of no-win no-fee solicitors. Brokers report a huge increase in the number of claims and, despite the payouts, the market hasn’t seen any upward movement in terms of rates.

Construction specialist Five Insurance Brokers managing director Robert Shurety says: “We find that when injuries onsite are reported, the claim will eventually come in even if it’s an employee that the client has looked after and paid well. There is a compensation culture and people look to cash in on it.”

A simultaneous influx of capacity to the market has also forced insurers to keep their rates competitive, which is keeping profit margins tight. However, construction and engineering is not a commoditised market, and price is not the sole consideration for clients.

Professional bodies’ insurance providers

The Royal Institution of Chartered Surveyors
Cover: Professional indemnity and personal lines property
Provider: Howden for professional indemnity, JLT for real estate

The Institution of Civil Engineers
Cover: Professional indemnity
Provider: Marsh

Royal Institute of British Architects
Cover: Professional indemnity
Provider: Riba insurance agency

The Federation of Master Builders
Cover: Legal expenses
Provider: DAS legal expenses insurance brokered through Aon