How will COVID-19 impact my construction project? Q&A with our Construction Brokers
The impact of COVID-19 has been felt in many sectors, one being the global construction industry. Projects are facing supply chain issues, new guidelines to ensure the health and safety of the workforce and a halt to planning and inspection timetables. Social distancing measures have been implemented across the industry as the government adapts its approach to minimise the spread of the coronavirus whilst ensuring construction projects can safely go ahead.
Over the last few months, our team have listened to client’s questions and provided answers and guidance concerning individual projects.
We spoke to two of our specialist construction insurance brokers, Emma Snelson and Gina Charles, to answer some Covid-19 related questions and specifically how the pandemic may impact your future construction projects. These have been answered in detail below.
What impact could COVID-19 have on our construction project?
The full effect of COVID-19 on projects will not yet be measurable especially if a project is at an early stage. However, we are seeing delays in supply chains, shortages of materials and temporary closures of sites. All causing project delays. Our advice to clients is you should keep your broker informed of any potential delays to your project due to any issues such as the delays highlighted that relate to COVID-19.
It’s also very important you confirm with your broker if you are temporarily shutting a site down. Insurers have guidance for temporary site shutdowns and consequent re-openings due to COVID-19. Of course, all projects sites and parties should be following the relevant government advice which can be found here.
How will COVID-19 affect project insurance policies going forward?
Project insurances like Construction All Risks, Public Liability, Non-Negligence (6.5.1) and Terrorism are all likely to see new market exclusions that mean some elements of a project’s cover will not necessarily include coverage for COVID-19. Restrictions on Delay in Start-Up wordings mean that delays on a project due to COVID-19 are unlikely to be picked up by a policy.
The FCA test case that is currently on-going is expected to rule in September and will hopefully provide more clarity on the impact of COVID-19 on policy coverage. If you are already on cover and think you may have suffered project delays as a result of COVID-19 or you are unsure whether your estimated project period allows for potential delays, we recommend that you inform your broker as soon as possible.
Why are we seeing rate increases?
The market policy rating mechanism, which calculates premiums, has been operating at unsustainable levels for around a decade. Insurers are now looking to correct this quickly which has significantly increased project premiums in a short space of time. Well known large losses such as The Mandarin Oriental Hotel, Glasgow Art School and, internationally, the Brumadinho Dam Burst have created catastrophic losses in the insurance market which has caused concern for all insurers involved in the sector. Additionally, insurers writing construction risks have seen increased sizeable losses from water damage and fires on large and/or high value projects. With some notable insurers pulling out of writing construction risks, capacity has reduced, and consequently rating has increased.
The key to getting the most competitive premium and appropriate coverage is early engagement with the Insurers. We have been successful in such engagement and working with the project to provide all the required detail / information for a competitive quote. This ensures that insurers requirements are clearly discussed to the project, and allowing time to consider and implement these to achieve the widest cover and competitive premium.
Are insurers comfortable with modern sustainable methods of construction?
One of the outcomes from COVID-19 has been the visible effect on the environment due to the decreasing amount of pollution emitted globally whilst most of the world was in some level of controlled lockdown. It seems that developers and contractors are becoming increasingly aware of incorporating environmentally friendly and sustainable methods into builds such as green walls and projects that incorporate a blue roof. Whilst such technology for blue roofs was developed around 2015, they are only recently beginning to be incorporated into large scale commercial/residential projects. Therefore, insurers require more technical details to be able to assess their risks. Modern and sustainable methods of construction are not necessarily problematic for insurers, but you should ready to provide full details and risk information which is always required for newer technologies and construction methods.
Why is my insurer requiring water damage mitigation measures?
Escape of water claims have impacted construction projects significantly. Insurers have seen large losses from these claims when a project is close to practical completion. Therefore, they require mitigation measures to reduce claims from water damage. The Construction Insurance Risk Engineers Group (CIREG) have released updated best practice guidance and advice regarding mitigation of escape of water which insurers expect a project to follow.
Guidance includes, for example, leak detection stops valves, automatic shut off valves, and a designated individual on site and off site to monitor the water management systems and trouble shoot if required. For further information on CIREG guidance can be found here.
We would suggest incorporating these measures into a project at design stage and having a water management plan prepared and agreed with those on site before your build begins.
If you have any questions on the contents of this article, please get in touch with your usual Griffiths & Armour contact or submit your enquiry directly to two of our specialist construction insurance brokers, Emma Snelson (left) and Gina Charles (right) by clicking the Contact feature below.
