Insuring your construction business effectively in the wake of the disaster
The full scale of the Grenfell Tower fire tragedy is gradually unfolding. The shocking revelations of some of the decisions that led up to the disaster are also becoming clearer. As the UK starts to come to term with the loss, more answers are being demanded to help prevent it ever happening again. Moving forward, it’s clear that changes will need to be made in the construction industry. New build and refurbishment projects already undertaken as well as ones planned for the future will feel the repercussions for many years to come. And the tragedy is likely to have a significant impact on insurance for the building sector too.
The areas of focus for the public inquiry, headed by Sir Martin Moore-Bick, are still under consultation. Identifying how the fire spread so rapidly and to such devastating effect are likely to be key subjects under scrutiny. There are also strong calls to identify who is to blame for the tragedy. Meanwhile, a separate inquiry commissioned by the Institution of Civil Engineers has announced it will be compiling a report to make recommendations on changes to policy and practice for the building industry. Underwriters will be keenly awaiting the findings of these inquiries, in a bid to work out exactly how the disaster might affect insurance for the building sector going into the future.
How will Grenfell affect insurance for the building sector?
The short answer to the question of “how will Grenfell affect insurance for the building sector?” is that premiums will go up. From immediate effect, there will be financial increases for any contractors directly involved with cladding work. It’s also likely that the number of insurers prepared to take on the risk of insuring these businesses will drop. That means finding an insurer to cover your business could become harder.
But it’s not just cladding businesses and main-contractors on new-builds and refurbishment projects that are likely to feel the financial impact of the disaster. Other construction experts, such as project managers, architects and health and safety consultants, could also face rising insurance premiums to cover the increased risks.
Known risks of the construction industry
Even before the disaster, the cladding sector of the construction industry was paying out higher premiums because of the many risks associated with cladding.
The potential high expenses involved in removing and replacing damaged or faulty cladding made it a riskier proposition. And the associated fire risk had already been discussed for many years before the Grenfell Tower tragedy, including situations where cladding has been held responsible for several large-scale fires in Dubai over recent years.
In May 2017, the Association of British Insurers (ABI) also highlighted that the use of cladding could increase the potential scale of loss according to the Financial Times. The ABI had warned government ministers that building regulations needed to be reviewed because they were out-dated in the face of changing building processes, including the use of flammable surfaces.
In the ABI’s response to a consultation on housing policy it said: “External cladding made from combustible material can often cause significant fire to spread upwards and between buildings, which is a particular concern for areas of high building density.” It continued that installing “large quantities” of these flammable materials increased “the probability of fire and potential scale of loss.”
A considered approach to insuring risk
The current way works are commonly commissioned has been criticized as a possible contributing factor in the fire. Experts have suggested that multiple contractors involved in projects like the refurbishment of Grenfell could mean that critical areas of health and safety can get over looked. As a result, when calculating premiums for businesses in the building sector, underwriters are now probing further into business scope to identify potential areas of risk.
While a post-Grenfell approach is still under discussion by the insurance industry, all construction businesses are likely to be asked more questions such as:
- Do you undertake new-build or refurbishment cladding or façade work for commercial or residential high-rise blocks?
- Are materials used by your business either fire resistant on non-combustible?
- Can you confirm that all materials comply with building regulations?
- Are all materials installed according to the manufacturer’s recommended use of the product?
Urgent need to review past work
Insurers are also recommending that their clients review past work that has been carried out to ensure policies are adequate. Businesses need to be clear if they have been involved with any jobs involving problem materials as this will impact on future renewals. A failure to identify and disclose potential risks could leave future insurance claims invalidated.
For more information on insurance for the cladding or construction industry, get in touch with Park Insurance’s dedicated team of specialists or call 0117 954 8879.