There’s new pressure on the construction industry and it’s coming from the insurance industry. The International Underwriting Association is urging sweeping reforms that put quality, safety, and reliability ahead of cost-cutting.
With an eye towards improved risk management, insurers want to see a significant regulatory framework overhaul. And if the construction industry falls short, major restrictions on professional indemnity could be costly.
Will the already challenged construction sector be able to adjust to such demands?
New Challenges And Significant Costs
According to a Construction Leadership Council industry survey, there have been significant cost increases and new professional indemnity restrictions affecting the sector. These have come about due to deteriorating claims performance, which has emerged following a period of challenging underwriting conditions.
Members of the International Underwriting Association’s Construction Professional Lines Working Group have stated that endemic construction industry problems are no small factor.
Some of these problems include the prioritization of cost-cutting at the expense of more stringent oversight. The association has also cited many specific issues, including fire safety, use of cladding, and lack of quality affecting urban high-rises as well as other residential and commercial structures.
Facing Tough Underwriting Ultimatums
Restrictions on professional indemnity could amount to serious trouble for construction companies. Without sufficient coverage, developers and builders stand to assume major liabilities.
Per IUA director of legal and market services, Chris Jones, “A shift in culture is required in order to overcome continuing uncertainty about the enforcement of regulation and a lack of oversight and accountability in the construction process. In spite of many challenges, insurers continue to offer a wide and competitive range of construction professional indemnity products. Construction is a complex industry and IUA members are keen to work collaboratively to ensure a better dialogue on risk management.”
Some recommendations for lessening these challenges include new building regulations that are focused on better identifying the construction process and those responsible for the duties therein. More stringent oversight that extends throughout the life cycle of a building is included among other recommendations.
Overall, the construction industry appears to have been given quite the ultimatum on behalf of insurers: continue cutting corners and you pay the costs.
With construction season entering full swing, how will this clash between developers and builders and the companies that insure them play out? Is there any room for compromise or is it up to the construction industry to adjust?
Share your thoughts in the comments.
ABOUT The International Underwriting Association of London
The International Underwriting Association of London (IUA) is the focal representative and market organization for non-Lloyd’s international and wholesale insurance and reinsurance companies operating in the London Market.
The IUA was formed on 31 December 1998, through the merger of the London International Insurance and Reinsurance Market Association (LIRMA) and the Institute of London Underwriters (ILU). This union brought together the representative bodies for the marine and non-marine sectors of the London company insurance market.
LIRMA was formed in 1991 from the merger of previous insurance associations, established in the 1960s and 1970s, to support non-marine insurance business and reinsurance.
In 2019 the IUA celebrated 20 years of representing the London company market.
ABOUT Construction Leadership Council
The CLC’s mission is to provide sector leadership to the construction industry.
Our mission is to work with our industry colleagues to address fundamental business challenges associated with our cyclical workload and our ability to invest in the supply chain and our people. We aim to find opportunities to invest in skills, innovation, and technology in order to deliver greater productivity, drive greater efficiencies and deliver better value outcomes for our clients. Above all, CLC will work in collaboration with the Green Construction Board to ensure that all of our work is consistent with the UK meeting our Net Zero Carbon commitments.