“We’re struggling with capacity at the moment, but we’re having positive conversations with a number of A-rated structural warranty providers.”

This is a soundbite that developers, property professionals, and brokers will have heard over recent months when speaking to latent-defects insurers. As a result, there may be a temptation for professionals to turn to insurers with a poor (or no) rating from one of the UK’s rating agencies to secure ‘cover.’

Developers and brokers alike will have been forgiven for thinking twice about considering terms from providers who are backed by off-shore underwriters, but neither should be breaking their principals and diving into the unrated market just yet.

What duty of care must you or your extended team consider when considering an offer of insurer from an unrated structural warranty provider?

The failures of AlphaEnterprise, and Gable, demonstrated the harm caused to customers, with over 1 million policyholders having to find alternative insurance cover. Appropriate due diligence from all parties is essential – Make sure you and your broker are considering the following:

  • Have you been made aware that the insurer carries a poor or no financial rating and the potential consequences if the underwriter cannot fulfill their obligations during the term of the policy?
  • Are you being encouraged to pursue a set of unrated insurance terms when there is rated capacity available in the market – If so why?
  • An unrated insurer should always be used as a last option when all other avenues have been exhausted – With that in mind, if you are using an intermediary, do they have direct access to all of the A-rated providers in the market?

Our approach with unrated structural warranty providers :

Structural Warranties are designed to cover you against structural defects that occur in the ten years after practical completion. One of the fundamentals that should not be compromised when purchasing a policy is that the underwriter will exist for the full term. We purchase insurance in the hope that we don’t have to use it but have the peace of mind that it will protect us if we do.

And while nobody can completely guarantee the solvency of any entity, having a recognised rating based on the company’s creditworthiness offers significant comfort to policy purchasers that they are entering into an agreement with a reputable business on a sound financial footing.

As we’ve seen time and again in the latent-defects market, for every policy offered with A-rated insurers, there will always be various unrated insurers who will look to write the policy at a vastly reduced rate. But, the bitterness of poor quality remains long after the sweetness of a cheap deal has passed. There are not many phrases that are more apt for property professionals arranging latent-defects insurance; just ask anyone affected by the CRL/Alpha demise in 2018.

So what’s J3’s advice when it comes to unrated insurers?

Do not take the risk. Speak to J3 advisory to arrange a structural warranty underpinned by A-rated capacity on your next development. To speak to a member of the team call us on  020 3096 0718 or fill in our enquiry form online.