The government wants to put cowboy builders out of business. In August it announced an Approved Code for home improvement traders and a Trusted Payments system linking payments to agreed project milestones. Insurance was not named as a requirement, but the measures raise the question of whether appropriate cover could become a condition of winning work.
For high-risk trades, obtaining a quote is not necessarily the hard part.
"At present, it is far too easy for rogue builders to obtain competitive insurance quotations without sufficient scrutiny of their experience, working practices or health and safety standards," said Glenn Marshall, managing director and chief underwriting officer at Gem Underwriting.
Whether anyone has asked enough to establish what is being insured is another matter. Misrepresentation on a proposal form or statement of fact rarely surfaces at placement, he said. It tends to emerge when a claim lands.
Marshall defines high-risk construction trades by the potential severity of injury or fire. Roofing, scaffolding, demolition, asbestos and waste-related activities sit at the top of his list. A fall from height can result in a seven-figure claim, while he puts the typical cost of a mesothelioma claim at £125,000 to £200,000 per individual, though individual claims vary considerably. Many of those claims come from trades that disturb asbestos unknowingly, rather than licensed removers.
That severity keeps many insurers away. He puts competition in high-risk trades at around 15 markets, compared with roughly 30 for plumbers, painters, haulage and groundwork. Competition has grown over the past 12 to 18 months, but underwriting remains selective.
"Ideally, you want to see 50 roofing risks and identify the five you genuinely want to insure. We cannot dictate the market rate for these trades; the market rate is what it is."
The gap between having insurance and having the right insurance starts with the conversation between broker and client. Marshall said the broker needs the expertise to draw out the details an underwriter requires to assess the risk.
"Brokers are obviously under pressure to generate income," he said. Underwriters, though, remain responsible for asking enough questions.
In a soft market, a broker can approach 10 markets and receive six prices without a question being asked. An underwriter who then requests more detail may struggle to get the business because the client already has a price that suits.
"That's all well and good until a claim comes in and it transpires that the policy has a height restriction of 15 metres, yet the contractor has been working at heights of 20 or 25 metres," he said.
Marshall has encountered such gaps infrequently during his career, but said the market may begin to see more as rating engines take on more of the work. Portals have their uses, but he questions whether they establish the full exposure of a high-risk trade.
"You could have a scaffolding contractor employing just four people, enter a handful of details into a rating system and receive a quotation almost instantly. But what does that really tell you about the risk?"
A policy can then renew for three years without incident, leaving the policyholder confident in cover that has never been tested.
An insurer meeting a claim despite a breach of policy conditions and then pursuing the policyholder is rare, Marshall said, with fewer than 10 cases in his 40 years. When that happens, however, the consequences can extend beyond a dispute over cover.
Employers' liability rules prevent insurers from refusing compensation on certain grounds, including an employer's failure to take reasonable care to protect employees. Policy terms may allow the insurer to seek repayment from the employer, but recovery may be impossible if the business is insolvent, Marshall said.
Screening out rogue operators before binding takes deliberate digging. Credit checks, liquidation history and Health and Safety Executive prohibition notices can all inform whether to quote.
In a soft market, there is less commercial pressure to do that digging. During the last hard market, he said, only contractors with strong health and safety records and long insurer relationships could obtain an affordable quote. High-risk trades could find cover much harder to secure when conditions tighten again, although he doubts that is imminent.
A contractor might produce a certificate showing £10m of public liability cover, Marshall said, but that does not show whether the policy covers the work it actually does. If proof of cover becomes a condition of winning work, it will show that a policy exists, not whether it fits the trade.
