Challenges facing SME Construction today
The construction industry is constantly evolving. The introduction of new technology and new methods of construction mean that SMEs could face being under-insured or worse, without cover if they bypass brokers and obtain cover via an aggregator.
Chris Thomas, Head of Construction at Geo Specialty shares his thoughts on the challenges facing SMEs today and what brokers and underwriters can do to ensure customers are protected.
When the economy is down or uncertain due to things like changes in the political landscape, for example Brexit, then the effects are often felt by larger construction companies and then in turn smaller companies in the supply chain. As a result, SMEs often feel the pinch and the temptation to seek cheaper insurance cover via an aggregator can seem appealing. But time and time again contractors are being left exposed due to two key factors; not having the right type of policy and/or not having the right level of cover.
Annual vs project-based cover is something we see increasingly impacting the larger SMEs. Contractors will often have multiple projects running concurrently, and for those smaller contractors whose projects complete within a 12-month period, an annual policy is likely the best option.
However, problems arise for those contractors who have taken out an annual policy but are working on larger scale projects which span for more than 12 months. After the initial 12-month period, the policy will be due for renewal, and this is where contractors can be left exposed. In many cases the renewal could be with a different insurer who may not be willing to pick up the cover, immediately leaving the contractor at risk. From an insurer’s perspective, taking over a policy part way through a project increases the risk factor, as rather than taking on an empty plot, they are instead covering a half finished building with exposures and risk of theft, fire etc. and some aren’t willing to take this leap.
The other challenge is ensuring the right level of cover for the type of construction projects being undertaken.
The growing trend in timber frame construction over the past decade raises other potential risk factors, where depending on the scale of the project, the timber structure can be left exposed to the elements for an extended period of time. This is less prevalent in modular timber construction where construction can be completed within as little as a day. Despite this method of construction being increasingly popular, the security and fire controls in the UK are not as robust as countries who have been using timber frames for many years. Whilst timber frame properties are still considered specialist in the UK, there are many insurers who will cover them provided the right information is given upfront.
So what can be done to address the issue and ensure contractors aren’t being left short? Well simply put, it’s down to you the broker.
The role of a broker is to act in the best interests of their clients to find the right cover and the right insurer. This requires asking clients the right questions and gaining a greater understanding of how their business operates and the type of work they carry out. Historically, brokers looked to annual turnover to determine the level of cover for an annual policy, but as highlighted above more information needs to be sought on the number and types of projects the contractor is undertaking to determine whether an annual policy or project policy is right for them. And this is where brokers add value over an aggregator.
The Geo journey has begun.
An exciting future lies ahead as our Towergate businesses move over to Geo. From 1 February 2018, our personal lines business joins Geo Specialty in operating under the Geo brand. The move marks the next step in a programme of change as we transform into an agile MGA structured for long term success in an evolving insurance market.
Our commercial businesses will soon also move over to Geo, completing the operational phase of the transition. But that’s by no means the end of it. We’re on a journey to make a difference. To carriers. To brokers. To the industry as a whole. Geo is the start of that journey.
We look forward to sharing it with you.
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