There have been some significant changes in the Structural Warranty market in recent years, which makes ‘A’ rated insurance a must have.
In recent years some structural warranty providers have withdrawn from the market, narrowing the options available to developers. Others have found themselves temporarily halting the issuance of new policies while they work to secure additional capacity facilities.
At J3 Advisory, we only work with structural warranty providers that have ‘A’ rated capacity. While there is no requirement for an insurer to have a rating, it does provide credibility to their operations.
During our discussions with our clients, we emphasize the significance of inquiries about their structural warranty providers to understand the critical role of knowing who stands behind your warranty.
Some of the questions you need to consider when selecting your structural warranty or latents defects insurance providers:
- Who is your insurer?
- What is their rating?
- What limits of indemnity are available?
- What access to the lending market do they have?
For more information on the above, read our checklist for developers.
Understanding ‘A’ rated insurers
In the event of a claim, the insurer bears the responsibility for payment. An ‘A’ rated insurance company goes through evaluation by agencies such as Moody’s, Fitch, Standard & Poor’s (S&P), and A.M. Best.
These assessments gauge the insurer’s long-term financial strength and its capacity to fulfil valid claims. Conversely, lower-rated insures, such as those with a ‘B’ or ‘C’ rating, exhibit a diminished ability to settle claims.
Unrated insurers need more independent verification of their financial stability, potentially leaving claims unsettled.
Why it’s important to have ‘A’ rated insurance for structural warranties
When constructing a new property (regardless of the size of the development), securing a structural warranty is paramount for seamless sales and buyer protection. However, with a plethora of structural warranty providers available, selecting the right provider can take time and effort. The solution lies in opting for ‘A’ rated structural warranty providers and working with a partner who kind find the right solution for you – such as J3 Advisory.
Structural warranties currently span between 10 to 12 years, a duration far surpassing standard annual insurance policies. Consequently, the selection of an insurer must be approached with utmost care and consideration.
Opting for an unrated insurer, as demonstrated by the bankruptcy of Alpha Insurance A/S in 2018, can lead to substantial consequences. This incident left thousands of homeowners without cover and prompted established warranty provider CRL to cease operations.
Choosing an unrated structural warranty provider may initially seem cost-effective, but it carries the risk of substantial long-term expenses.
The pitfalls of not using an ‘A’ rated structural warranty provider
Selecting an insurer that later goes out of business can result in higher expenses in the long run. Not only could the initial premium be forfeited, but obtaining a new warranty becomes a necessity which can be costly – sometimes more than what the original policy would have cost as well as carrying more endorsements which could reduce the cover available to you and your customers.
This expenditure, coupled with potential delays, could also significantly erode profit margins.
Additionally, retrospective warranty procurement is more challenging, with ‘A’ Rated insurers conducting technical audits throughout the construction process to ensure high standards and identify defects early on.
To get an indicative cost for your structural warranty, click here.
Our conclusion
As the demand for new build properties continues to rise, the need for dependable structural warranties grows in tandem- however, it is crucial to conduct comprehensive research into the financial rating of the insurer supporting your chosen structural warranty provider. ‘A’ Rated providers offer the financial backing necessary for a 10 or 12-year insurance term, ensuring peace of mind and support throughout your policy term.
If you have a project you wish to discuss, fill in our online enquiry form or call us on 0203 096 0718.
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.
