The changes in the 10-year warranty market have been quite significant in recent years, so we’ve taken a deep dive to identify the key elements you should be looking for.
Some 10-year structural warranty providers have exited the market, leaving developers with a shorter panel of insurers to choose from. Others hit ‘pause’ on writing new business until they could arrange new capacity facilities.
There has been a broad consensus that the construction insurance market has hardened significantly, and that statement couldn’t be truer when arranging a 10-year structural warranty on new homes.
That threat has become J3 Advisory’s opportunity, and we’ve been delighted to help several experienced property professionals navigate the structural warranty and latent defects insurance market.
If you’re not quite ready to hit the enquiry button, we’ve created this ‘must know’ list for developers when arranging a structural warranty:
Limit of Indemnity
Some insurers may find it difficult to secure new capacity, and we’ve seen a trend in the market where many providers limit their levels of indemnity per structure to £25m on a 10-year structural warranty. This has left many SME developers vastly underinsured.
Even on smaller projects, developers should always confirm in writing that the reinstatement cost and the limit of indemnity on the policy are complementary of one another. It’s alarming how often we see an “alternative quote” that is priced attractively but leaves the developer grossly underinsured.
As an FCA-regulated advisory, it is our duty to make sure property developers partner with an insurer that works on a full construction value basis.
To learn more about underinsurance and the importance of accuracy when it comes to a structural warranty, read our blog.
‘A’ rated capacity
When the period of cover for a structural warranty is at least 10 years, it’s crucial when procuring this insurance policy to make sure the insurers’ underwriter has a financial rating from one of the UK’s rating agencies.
While nobody can completely guarantee the solvency of any entity, these ratings evaluate and assess a company’s creditworthiness and offer comfort to their network that they are a reputable business.
Developers may recall CRL’s unrated underwriter, Alpha Insurance, was declared bankrupt in 2018. Not only was this a time-consuming and costly exercise for developers who had placed their faith in CRL, they then had to seek alternative cover to for around 21,000 properties and homeowners to ensure they were protected with the correct 10-year structural warranty.
At J3 Advisory, we will only work with those 10-year structural warranty providers that have ‘A’ rated capacity. While there is no legal requirement for an insurer to be rated, it provides credibility to their operations. We believe it gives our clients the best opportunity to protect themselves from situations like the CRL/Alpha Insurance one.
The primary objective of any insurance is to offer peace of mind to the policyholder. Specifically, with a 10-year structural warranty, you want to have confidence that the ultimate underwriter will be around for the lifetime of the policy to fulfil their obligations in the event of a claim.
Access to the entire lending market
When selecting which 10-year structural warranty provider to partner with, the insurers’ access to the lending market should be a key consideration.
Insurers who don’t have ‘A’ rated carriers often have more restrictive lender acceptance lists that can become detrimental to sales.
When working with the lesser-known insurers, there are often restrictions around the number of units that a lender will accept from providers. For example, a bank will accept an insurer but only on projects of less than 10 units.
Competent and compliant technical services
Developers should be mindful of the insurers’ technical process and requirements on-site during the inspections for a 10-year structural warranty. While there are insurers in the market whose requirement is that you build in line with Building Regulations standards, some providers also have technical handbooks that go above and beyond. We work with our clients to understand the project and partner them with an insurer who will best complement their development.
Demonstrable experience in 10-year structural warranties
Questions are often asked of a developers’ experience when undertaking a new project, such as:
- If they have completed projects of a similar scale previously;
- Details of their recent portfolio of projects; and
- Details of the professional on-site team, including the main contractor and sub-contractors.
When exploring the market, developers should rightly ask similar questions of their prospective insurers who are issuing a 10-year structural warranty:
- What are the insurers’ appetite and experience of similar sized schemes?
- Does the insurer have references available for comparable developers / developments?
At the lower end of the 10-year structural warranty market, it is easy to find an attractive price from a provider that lacks the experience, level of indemnity, and capacity you need for your ‘big’ project.
Like those that went through the CRL/Alpha Insurance situation, the bitterness of poor quality remains long after the sweetness of a low price is forgotten.
Arranging 10-year structural warranties with J3 Advisory
By understand our clients’ goals we can provide objective advice, finding them the most suitable cover for their business.
We have access to all ‘A’ rated 10-year structural warranty providers across the market and deliver a comprehensive comparison enabling developers to make decisions confidently and swiftly.
We are results-driven and provide a fresh approach, and offer the benefits of continuity. We frequently take care of the insurance on multiple schemes with the same client, becoming an extension of their businesses.
Clients benefit from our detailed knowledge of their projects, their objectives, and a deepening relationship with their people. This evokes confidence not only from our clients but also the insurers and underwriters we place business with.
If you have a project you wish to discuss, call us on 020 3096 0718 or fill in our enquiry form online.
About the Author
Matthew Blackhall
Senior Advisor
Matt joins J3 having developed an impressive network of property professionals since moving to London. His experience centres around supporting SME housebuilders and housing associations in arranging and placing structural warranty insurance. His commitment and track record of securing the best possible outcome has been his professional trademark which underpins his successful client relationships. Matt was raised in Leeds, and studied in Newcastle before moving to the capital.
