LATENT DEFECTS STRIKES BACK

1
LATENT DEFECTS - STRIKES BACK!

• Presented by
• Mark Jackson

2
The Cover

• Cover against inherent defects in commercial
  structures for a 10 year period following
  practical completion.
• Claims can arise from defective workmanship,
  design or materials
• Excess Levels usually 10,000 or higher
• Minimum Premiums usually 5,000

3
Principal Extensions to Cover

• Waiver of Subrogation against contractor and
  Professional Team available
• 12 Year policy
• Fully Assignable
• Temporary Removal of Contents (up to 250,000)
• Inflation protection

4
How Cover is arranged

• Proposal Form with supporting plans, ground
  condition reports and contractual arrangements
  supplied
• Insurer indicates premium and technical
  inspection fee
• Acceptance confirmed with payment of a deposit
  premium inspection fee
• Certificate of intent issued by insurer
• Balance of premium paid upon completion and cover
  confirmed

5
Claims Experience

• Very few claims reported in the market at present
• Overall few policies have reached full 10 year
  policy term
• Most reported losses occur in areas such as
• Waterproofing claims (bad workmanship)
• Roofing and Basements (waterproofing)
• Completed Buildings

6
Defects

• Charles De Gaulle Airport Collapse
• Waterloo Station
• Millennium Bridge
• Clissold Leisure Centre

7
THE MARKETS
8
Background

• Introduced to UK market 20 years ago
• Compulsory in France Spain
• Initial Market -
• Norman - smaller buildings
• SCOR - Larger developments
• Allianz - Larger developments
• late eighties UK blue chip insurers entered
  market

9
Size of Markets

• LDI Market still gaining recognition as a product
• Statistics not available at present - too
  specific
• Major Contractors Group estimate total UK
  commercial new build construction reaches 40bn
  annually

10
Recent Market Changes

• Latent Gold - launched 1/1/00
• Market Reaction - from 1/1/00

11
Latent Gold

• Previous drawbacks with Latent Defects insurance
• Additional Inspections
• Cost and administration
• If LABC are appointed to undertake Building
  Control there is no requirement for additional
  inspections

12
Latent Gold - continued

• Minimum Premiums 1,500 plus ipt
• Excess levels start at 5,000
• The premiums required for a 10 year warranty are
  from.58

13
Present LDI Market

• Allianz Cornhill
• Norwich Union
• Royal and Sun Alliance
• SCOR Pulled out of reinsurance
• Zurich Ceased to write commercial
• Trenwick Into run off

14
Market Reaction

• Reduced rating - Standard Insurance rating .60
  to .80
• Technical Inspection still required
• Initially more flexibility
• ME covers
• BI Covers

15
Recent Market Developments

• Reduced Business Interruption Covers
• Civil Engineering projects
• PFI/PPP Projects - Lifetime costings
• Non Structural Items
• Machinery and Plant Engineering Market
• Completed Structure covers

16
Future of Latent Defects

• Compulsory Insurance?
• Professional/Client awareness increasing
• Construction Industry Boom
• Reduced costings
• Collateral Warranty issues continue

17
Summary

• Latent Gold has changed Client/Professional
  perceptions
• Funders beginning to drive requests
• Client Awareness is increasing
• Competitiveness of product improving
• Untapped marketplace??????

18
QUESTIONS