Discover the key issues discussed by our panel of property industry experts at our recent London developers’ seminar
On 18 June 2019, Marsh JLT Construction’s Owners & Developers team hosted a Building Knowledge seminar aimed at UK Developers. We were pleased to welcome a wide range of clients and prospects to our London HQ to hear presentations on the shape of the London developer market over the next 12-18 months. The specific subjects and the key issues discussed are detailed below:
Allan Wilén of Glenigan provided us with an economic outlook for the UK construction industry. Allan is expecting weak economic growth and continued political uncertainty overshadowing overall construction activity this year. The direct effects will be:
- Deterring business investment
- Weaker housing market activity
- Subdued Government-funded investment
- Bright spots offer opportunities in different sectors & regions
There are, however, brighter prospects for 2020:
- Greater political certainty helps lift investor confidence
- Strengthening in private housing activity
- Increase in public sector investment
- Rise in civil engineering work
These forecasts assume that UK leaves EU with an agreement and transitional period. Should that not occur the forecast will be less rosy.
Water damage on construction sites
The construction & engineering insurance sector has suffered unprecedented losses both in the UK and overseas. International losses have centred on hydro-electric plants and the major UK losses have involved fire damage, particularly for buildings under refurbishment. There has also been a significant increase in attritional water damage losses.
Andy Kane of QBE provided the following insights into water damage claims on construction sites:
- Most large losses are associated with hospitals and multi-storey buildings.
- Most large losses are associated with permanent systems, not temporary.
- Most large losses are due to the failure of a mechanical joint.
- A large loss is more likely if a leak occurs out-of-hours, but not by much; it appears that the time of the incident is not that important.
- Water damage losses are an equal exposure for liability and construction all risks policies.
Latent defect Insurance (LDI)
Peter Wallace from Castel presented on LDI and explained some of the trends in that market sector. Demand is increasing for LDI and there are a number of different drivers:
- Renovation and refurbishment programmes in existing buildings have created a demand for more bespoke products offering different levels of protection for with the project works or the existing structure.
- The technical underwriting risk management process followed by LDI underwriters has had a material benefit in defect avoidance in a number of different cases.
- Concerns over contractor solvency, combined by deterioration in the design and construct PI market has diluted the ability of employers/owners to recover from their supply chains.
- Private rented sector (PRS) developers have been keeping their sale options open by following the risk management underwriting process during construction. This will allow a post completion LDI option to be taken up in the event that the properties will subsequently be sold as opposed to held for rental return.
Construction insurance market
Andrew Birt of Marsh JLT Specialty Construction provided an overview of the current construction insurance market conditions. Key trends for owners and developers were identified as follows:
- The requirement to provide contractual liability coverage, particularly around rail infrastructure, is becoming more common. It is understood that TfL may now be mandating this coverage as part of its requirement for developers working adjacent to its rail infrastructure.
- Latent defects insurance is in greater demand (see above) and there are more providers offering this class of insurance than ever before.
- The advance of smart buildings and the internet of things is presenting a new risk to developers and owners. Intelligent building control systems and similar technological innovations are now commonplace and owners are looking to protect these systems, the buildings the control and the data they contain from malicious actors. Specialised cyber products are now being made available to protect against these risks.
- Environmental liability insurance continues to gain in popularity, especially where developments are being planned on brownfield sites.
- Developers are increasingly facing potential liabilities for breaching neighbours’ rights to light and legal indemnity insurances for these and other risks are also increasing in popularity.
- As mentioned above, there is an increased focus on water damage given the substantial increase in claims numbers and costs during the past five years.
We thank all of our presenters and guests for making the seminar a success and we look forward to hosting further events later in the year. If there are any subjects that you would like us to address in future seminars, please let us know.