Paying a premium for cladding insurance
Friday 12th October 2018
As we approach 18 months since the Grenfell Tower disaster, much of the debate and continued fallout still surrounds the use of cladding. The Government has finally announced a ban on combustible cladding for new residential buildings above 18 metres, which is set to come into force with the next update of Building Regulations, and more housing providers are choosing to replace existing cladding, often at huge expense.
However, regulatory changes are not the only considerations for the industry, with big questions post-Grenfell about the availability of professional indemnity (PI) insurance for cladding sub-contractors.
Soaring insurance costs
Already, the cost of cladding insurance has rocketed with insurers and brokers facing criticism from all sides for price hikes of up to 1000% reported in some cases. Their response, of course, is that such a cautious approach is necessary in light over safety concerns since the Grenfell Tower fire, but this poses some real concerns for main contractors.
Under standard collateral warranties, many of their sub-contractors will be required to maintain insurance for a 12-year period so long as such cover is available at ‘reasonable commercial rates.’ However, with the recent price hikes, many cladding sub-contractors are claiming that they cannot afford to pay the increased cost of premiums. Where does that leave main contractors? The short is answer is; exposed.
To compound matters, I am also aware of many ‘affordable’ insurance policies which now contain onerous exclusions, with the result that the policy may not provide cover for claims relating to combustibility or fire protection from any composite panels.
Remember that a common requirement of a main contractor’s own PI policy is that it checks that their own sub-contractors have PI cover in place. In this case, if a policy contained exclusions around combustibility, it would not be sufficient to cover the main contractor and that firm may need to get additional insurance to cover the risk, particularly for past builds.
These are big issues for the industry, so it is vital that contractors are both aware of the impact and have the processes in place to make sure they do not pose a risk to the business.
Despite its significance, this is an issue that won’t go away anytime soon. Insurance price hikes have been reported ever since that fateful day in West London and it will be some time before the cladding market finds the stability, security and safety it needs for PI insurance premiums to settle back down.
In the meantime, main contractors must ensure they carefully check the PI insurance of their cladding sub-contractors to establish whether the level and extent of cover meets the requirements under their own policies. Speak to your professional advisors for support, because this is one thing you can’t afford to get wrong.
Read Anjon Mallik’s thoughts on The Construction Index.