Latent defects (LD) provider, Building Life Plans (BLP) has announced it will be ending its partnership with Allianz Global Corporate & Specialty (AGCS), the underwriter of BLP’s residential, commercial and mixed-use structural warranties. While not on the scale of the break-up of Brangelina or The Beatles, the ending of BLP’s and AGCS’ partnership will likely have a major impact on the LD market.
Discussions between BLP and various ‘major insurance companies’ are apparently ongoing, and from its press release, it appears BLP does not intend to stop providing LD insurance altogether; however, only time will tell.
In the meantime, AGCS will continue to underwrite BLP’s policies and provide full claims service in relation to all policies agreed up until 27 November 2020. BLP itself is continuing to service and audit all quotes accepted for policies agreed up to then.
This announcement is yet another big blow in relation to LD policies. Not only has the sector seen the bankruptcy of Alpha Insurance A/S, the underwriter of LD policies provided by CRL (please see our previous update), but also premiums for LD policies are ever increasing. Furthermore, too often those seeking to rely on their policy find the cover provided is not as expected, they receive a less than adequate response and/or their claim is out of time (please see our previous update).
For those developing residential property, an LD policy of course remains a ‘must have’ for a property to be mortgageable and thus saleable. While a commercial property developer might have traditionally considered an LD policy less important – especially where collateral warranties were provided by the construction team – not only do warranties and LD policies provide different types of cover, currently the ability for warrantors such as design and build contractors, architects and engineers to obtain and, crucially, maintain suitable levels and basis of insurance for ten (10) or more years is itself uncertain.
Fortunately, there remain many other good LD providers in the market.
Alpha’s insolvency demonstrates that ensuring the credit worthiness of a policy’s underlying insurer is key. As we have seen over the last two to three years, the insolvency of an insurer can have very dire consequences both for buyers, who may find it impossible to replace the cover, and for developers who have to buy replacement cover for their developments, which may prove challenging if the development is part way through.
Hence, developers should ideally only consider policies underwritten by UK-based insurers which one of the major rating agencies has rated as at least “A” or better. Such a credit rating should generally provide assurance that the insurer has sufficient financial strength to remain able to service claims for the full term of the policy.
In terms of policy premiums, remember the old adage “you get what you pay for”. It is perhaps not surprising that lower premium policies will generally provide less “certain” cover and have more restrictions and/or exclusions. Therefore, developers must consider the terms of the LD policy and the identity of the insurer from the outset and ensure the premium is accounted for in the development budget, while purchasers of new build properties (or their solicitors) need to read the policy documents prior to purchase, understand the cover provided by the LD policy and ensure the insurer is suitably robust financially.
While the news of BLP’s and AGCS’ partnership ending is unfortunate, as The Beatles, Brad and Angie have all discovered, although a new partnership might not be the same, there are other good options out there.
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