Protecting and Enabling PBSA Schemes
Protecting and Enabling PBSA Schemes
The purpose-built student accommodation space has seen a substantial increase, with projected capacity growth of a further 4.7% in 2023. While insuring the construction aspect of these schemes follows a relatively straightforward process, there is now sharp focus on mitigating the risk with regards to the solvency of main and sub-contractors.
When contractors are placed into administration post-practical completion, the protection offered by a professional indemnity policy is unlikely to continue, rendering the actionability of collateral warranties dependent on such a policy obsolete.
This ‘insolvency protection’ is not the only benefit of latent defects insurance, but in the current state of the construction industry, many view it as a key consideration in purchasing this type of insurance. The other attractive point to investors and developers is the options to include ‘loss of rent cover’ with certain providers.
Although LDI is not currently mandated by lenders for commercial developments, its ability to serve as a safeguard against future potential costs and concerns for a development make it a compelling consideration.
Now looks to be an opportune moment to mitigate project risk by evaluating how to address defects giving rise to a claim post completion, especially with one eye on the rising number of contactor insolvencies in the market – This is applicable for both current projects and your development pipeline.
The J3 advisory team are working hard alongside our insurer partners to assist clients with insurance solutions such as Latent Defects Insurance (LDI) amongst other mandatory policies, including Delay in Start Up (DSU) coverage as well as owner’s or developer’s Contractors All Risks (CAR) policies.
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.
Mitigating risks of contractor insolvencies
The purpose-built student accommodation space has seen a substantial increase, with projected capacity growth of a further 4.7% in 2023. While insuring the construction aspect of these schemes follows a relatively straightforward process, there is now sharp focus on mitigating the risk with regards to the solvency of main and sub-contractors.
When contractors are placed into administration post-practical completion, the protection offered by a professional indemnity policy is unlikely to continue, rendering the actionability of collateral warranties dependent on such a policy obsolete.
This ‘insolvency protection’ is not the only benefit of latent defects insurance, but in the current state of the construction industry, many view it as a key consideration in purchasing this type of insurance. The other attractive point to investors and developers is the options to include ‘loss of rent cover’ with certain providers.
Although LDI is not currently mandated by lenders for commercial developments, its ability to serve as a safeguard against future potential costs and concerns for a development make it a compelling consideration.
Now looks to be an opportune moment to mitigate project risk by evaluating how to address defects giving rise to a claim post completion, especially with one eye on the rising number of contactor insolvencies in the market – This is applicable for both current projects and your development pipeline.
The J3 advisory team are working hard alongside our insurer partners to assist clients with insurance solutions such as Latent Defects Insurance (LDI) amongst other mandatory policies, including Delay in Start Up (DSU) coverage as well as owner’s or developer’s Contractors All Risks (CAR) policies.
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