Government Business

When I first entered the world of insurance in 1959 an old family friend advised me, in whispered confidence, that I should always try to look busy if I wanted an easy life. Quite why he proffered such advice, when his record on job retention was so poor, I do not know but, suffice to say, I never took it on board. That became apparent thirty years later when Sun Alliance, together with several other UK insurers, commenced writing latent defects insurance. I was asked to look after all the new business enquiries, apparently on the basis that my desk was relatively tidy that day. That may have been the sole selection criteria for latent defects underwriters everywhere, because when I got to know the other companies’ underwriters it emerged that we all came from different insurance disciplines; property, liability, engineering and construction. The only thing most of us had in common was that we did not know the first thing about latent defects insurance and we were all on a steep learning curve.
    
So began my foray into the intriguing world of property development and construction. I had a friend who came into insurance because he was fascinated by buildings. I could understand that fascination. Go to many UK towns and cities and look around. Most importantly, look up as well and you cannot but appreciate the beauty of so much of the architecture, the brilliance of structural engineers and
the sheer magnificence of our heritage. Even if you do not like some modern buildings, at least admire the creativity and diversity that architects, engineers and planners have accomplished. Though quite how my friend reconciled his love of
buildings with a desire to insure them escapes me to this day. What I also found difficult to reconcile was the evidence of my eyes compared to the negative things
people in construction told me about their industry. It was, apparently,
incompetent, inefficient, confrontational, expensive and prone to delays. At the same time there was recognition that our architects and engineers are world class. Whilst it didn’t make much sense to me at first, it soon became apparent that many of the problems flowed from the insurance and liability regime in which construction operates in the UK.
    
In the perceived absence of an acceptable insurance policy that pays to put right damage resulting from latent defects in completed buildings, it is necessary to find a party or parties liable for the defect under their contracts or under the common
law and then sue them. This can be uncertain and expensive and even
where successful will mean a long wait for compensation, but that is only the end of the story. The story begins even before construction starts.
    
There seems to be an immediate assumption by all those involved in a new project that the building will have defects in it, which, at some stage, will need to be put right at someone’s expense. The developers want to make sure that this expense will not fall on them or any potential new owners or tenants so they spend a lot of time and money trying to ensure that there will be a remedy i.e. a party or parties of significant and robust financial standing or with adequate insurance cover who are worth suing. That potential liability usually falls on the professionals and/or the contractors with design responsibilities. To cover that liability they have to buy professional indemnity insurance, not just during the construction period but for twelve years afterwards. The cost of this can be very high and may rise year on year. One of the reasons architects and engineers pay so much for this insurance is that the consequential losses flowing from defective design, etc. can be very high, quite apart from the cost of rectifying the defects themselves. Another good reason for avoiding defects in the first place, you might think.
    
What should really happen is that all the parties to a construction project should be able to focus almost exclusively on the design and construction of buildings so that the possibility of the building having defects is reduced from the outset. As a side benefit some of the time saved could also be spent in discussions with the end users about what they really want from the building, so that everyone knows what they should be finishing up with from the very start. Expensive and time consuming
alterations to the building works after commencement might then be reduced, even eliminated.
    
It soon became apparent to me that this happy state of affairs would come about more easily if insurance could take more of the strain, as indeed it does in some other European countries. About 45 years ago there was an insurance campaign in the UK that took that as its theme: “Get the strength of the insurance companies around you”. Perhaps that should be the theme for a construction project. I always felt that latent defects insurance had a lot of potential and would soon catch on but events did not prove me right. In the absence of latent defects insurance being widely accepted as a solution much of the construction industry has continued to deal with risk by seeking to divert it directly to other parties, but not directly to insurers. A visitor from another planet might find that strange. After all, completed buildings are insured against all risks of damage. Only a supreme optimist would not insure a building on the grounds that if it burnt down he would be able to sue someone for negligently starting the fire.
    
However, there are now signs that existing insurance solutions are being considered more seriously and the insurance industry must respond to demand for even more tailored products. Will the day ever come when insurance nearly always takes the strain and developers, contractors, architects, engineers and others go about their jobs without so much fear of defects and litigation hanging over them? It just might at that. It is why I and several others from all walks of the construction industry, with welcome support from the RICS, have devoted some of the last twelve months to expanding on the problems faced by those working in the development and construction fields and discussing insurance as a solution.
    
So, if you are engaging in development, good luck, because you will need it.
    
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