UK CONSTRUCTION and engineering firms face severely adverse changes to their insurance policy conditions this year that will threaten their abilities to conduct business, according to commercial insurance provider, Mactavish.
The changes include sharply reduced cover levels, irrespective of cost, which could disqualify companies from accepting new contracts or drive them into non-compliance with existing contracts. According to Mactavish, in some of the most extreme cases this could threaten huge contraction of companies’ operations or even prompt distressed business sales, with drastic consequences for shareholders and management.
Other threats include premium increases of up to five-times and excesses/deductibles going up by a factor of three to four.
Mactavish claim that the changes are being caused by insurance ‘capacity blackspots’ hitting certain industry sectors which have benefitted from a long period of attractive insurance pricing, but have now become so complex that insurance companies are reluctant to underwrite the risks.
The issue has emerged after years of poor insurance underwriting results and sustained losses came to a head towards the end of 2018. Several underwriters withdrew from writing professional indemnity risk in the construction sector altogether, leading to a tightening of insurance market conditions which is unprecedented in the last 15 years.
Bruce Hepburn, CEO, Mactavish, commented: “The net effect on insurance-value-for-money for construction businesses will be catastrophic. To avoid the risks created by these changes, it is more imperative than ever that they think about how to communicate their risk favourably, to meet all their legal obligations and to clarify the terms of their insurance cover before it is too late.
“There are two major further risks. One, the reliability risk is drastically increased because insurers will always challenge far more claims in a hard market, which is likely to increase even further beyond the 45% of large and complex claims currently disputed in the UK. Second, limitations will also lead to exposure to wild, punitive shifts in pricing and available limits, particularly pronounced in blackspot sectors and for companies whose risk information is poor, irrespective of how well the business is actually managed.”