Protecting and Enabling BTR Developments
Protecting and Enabling BTR Developments
The latent defects market has recognised the significant investments made in the BTR sector and has responded with flexible policies that support and enable developers over the short and long term.
Developers and funders involved in BTR schemes now have an expanded range of building warranty providers offering UK finance-approved policies. This allows for fractional sales of units after the first two-years and the option to include loss of rent cover.
As a result, experienced operators in the space are transitioning from the conventional commercial latent defect policies to flexible latent defects policies.
Benefits of flexible LDI policies include:
- Option to include loss of rent cover
- Full risk transfer from day 1
- No two-year defects period
- More providers are offering cover on a full construction value basis (Previously, some providers would limit their levels of indemnity per structure to £25m)
- Allows for a fractional sales strategy ie the policy can be amended to enable a unit-by-unit sell-off (after year two)
- Option to spread the cost of the policy over 10 months with no down payment required
As the construction insurance market continues to evolve and change at a rapid pace, being selective about what advice you listen to and where it comes from is a vital part of a developer’s wider insurance and risk mitigation strategy.
To speak to a member of the J3 advisory team about your next scheme and overall programme, call us on 020 3096 0718.
Get an indication.
Have questions? Call 020 3096 0718
* This calculation is to be used for indicative quote purposes ONLY and underwriters reserve their rights to amend the Premiums, Terms and Conditions
Frequently Asked Questions
What factors impact the cost of a building warranty?
There are five main elements that will affect the cost of your warranty:
- Professional teams experience: Demonstration that the developer, contractor and sub-contractors have carried out similar sized projects and has a clean claims history.
- The stage of the works: Developers will always find it most cost effective by arranging the warranty before the works commence.
- Developers financial standing: The stronger a developers financial footprint the more favourable terms an underwriter will offer.
- The size, cost and location of your developments.
- A developers rating with other insurance providers (if available).
What are the key considerations when selecting a warranty provider?
Some of the key considerations that developers need to be aware of:
- Limit of indemnity: Developers should always confirm in writing that the reinstatement cost and the limit of indemnity on the policy mirror one another.
- Access to the lending market: Insurers who don’t have A-rated carriers often have more restrictive lender acceptance lists that can become detrimental to sales.
- A-rated capacity: Check that the insurers’ underwriter has a financial rating from one of the UK’s ratings 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 on sound financial footing.
- Demonstrable experience: Property professionals and developers should understand the insurers’ appetite and experience of similar sized schemes.
How long will it take to get a warranty in place?
Once we have full enquiry details, alongside supporting documents, it is fair to assume a four-week time period from submission to boots on the ground for an inspection. On larger schemes (in excess of £25m), we always advise clients to allow a 6 week lead time.
Should developers only consider A-rated insurers?
While there is no requirement for an insurer to be rated, it provides credibility and comfort to those that they work with. One of the fundamentals that should not be compromised when purchasing a warranty is that the underwriter will be in-situ for the full term of the policy. 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.
We understand that there will always be unrated insurers who will look to write a policy at a vastly reduced rate. However, many developers will recall in 2018 when CRL’s un-rated underwriter, Alpha insurance, was declared bankrupt. This was both a time-consuming and costly exercise for developers who had placed their faith in CRL and then had to seek alternative cover.
Our advice is to always always seek a building warranty that is underpinned by A-rated capacity for your developments.
Smarter solutions for your BTR insurance needs
The latent defects market has recognised the significant investments made in the BTR sector and has responded with flexible policies that support and enable developers over the short and long term.
Developers and funders involved in BTR schemes now have an expanded range of building warranty providers offering UK finance-approved policies. This allows for fractional sales of units after the first two-years and the option to include loss of rent cover.
As a result, experienced operators in the space are transitioning from the conventional commercial latent defect policies to flexible latent defects policies.
Benefits of flexible LDI policy include:
- Option to include loss of rent cover
- Full risk transfer from day 1
- No two-year defects period
- More providers are offering cover on a full construction value basis (Previously, some providers would limit their levels of indemnity per structure to £25m)
- Allows for a fractional sales strategy ie the policy can be amended to enable a unit-by-unit sell-off (after year two)
- Option to spread the cost of the policy over 10 months with no down payment required
As the construction insurance market continues to evolve and change at a rapid pace, being selective about what advice you listen to and where it comes from is a vital part of a developer’s wider insurance and risk mitigation strategy.
To speak to a member of the J3 advisory team about your next scheme and overall programme, call us on 020 3096 0718.
Frequently Asked Questions
What factors impact the cost of a building warranty?
There are five main elements that will affect the cost of your warranty:
- Professional teams experience: Demonstration that the developer, contractor and sub-contractors have carried out similar sized projects and has a clean claims history.
- The stage of the works: Developers will always find it most cost effective by arranging the warranty before the works commence.
- Developers financial standing: The stronger a developers financial footprint the more favourable terms an underwriter will offer.
- The size, cost and location of your developments.
- A developers rating with other insurance providers (if available).
What are the key considerations when selecting a warranty provider?
Some of the key considerations that developers need to be aware of:
- Limit of indemnity: Developers should always confirm in writing that the reinstatement cost and the limit of indemnity on the policy mirror one another.
- Access to the lending market: Insurers who don’t have A-rated carriers often have more restrictive lender acceptance lists that can become detrimental to sales.
- A-rated capacity: Check that the insurers’ underwriter has a financial rating from one of the UK’s ratings 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 on sound financial footing.
- Demonstrable experience: Property professionals and developers should understand the insurers’ appetite and experience of similar sized schemes.
How long will it take to get a warranty in place?
Once we have full enquiry details, alongside supporting documents, it is fair to assume a four-week time period from submission to boots on the ground for an inspection. On larger schemes (in excess of £25m), we always advise clients to allow a 6 week lead time.
Why is purchasing a policy backed by an A-rated underwriter important?
While there is no requirement for an insurer to be rated, it provides credibility and comfort to those that they work with. One of the fundamentals that should not be compromised when purchasing a warranty is that the underwriter will be in-situ for the full term of the policy. 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.
We understand that there will always be unrated insurers who will look to write a policy at a vastly reduced rate. However, many developers will recall in 2018 when CRL’s un-rated underwriter, Alpha insurance, was declared bankrupt. This was both a time-consuming and costly exercise for developers who had placed their faith in CRL and then had to seek alternative cover.
Our advice is to always always seek a building warranty that is underpinned by A-rated capacity for your developments.
Get an indication.
Have questions? Call 020 3096 0718