Construction

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for construction.

Key developments in 2022 

Whilst the Building Safety Act 2022 (BSA) presents a major challenge to the whole construction industry, some aspects may assist all parties to the industry, including Insurers, by improving standards within it and making it a more attractive sector to write. The BSA aims to strengthen fire safety regulation and to clarify who is responsible for this. A lot of the associated regulations are yet to be published. To date, the key changes include the introduction of (a) a Building Safety Regulator with powers to enforce building safety and compliance with standards, with a particular focus on high rise buildings and (b) new duty holders, including accountable persons, whose obligations under the BSA include the assessment and management of building safety risks which are contained in the BSA. 

The BSA has also broadened the potential for liability under the Defective Premises Act 1972 (DPA). The limitation period for a potential claimant to bring a claim under the DPA has increased from six years after the completion of a dwelling to either 30 years for dwellings completed before 28 June 2022, or 15 years for dwellings due to complete after 28 June 2022.  The BSA also establishes a new potential right of action against any person who “takes on work in relation to any part of” a dwelling.  Therefore, claims can now be brought in respect of remedial works completed on an existing building after 28 June 2022, subject to the new 15-year limitation period.

As of 9 August 2022, 49 developers have signed a pledge committing to remediate life critical fire safety works in buildings over 11 metres that they have played a role in developing or refurbishing over the last 30 years in England. This is a major discussion point between construction professionals (including developers) and their insurers.

On a separate note, we continue to see a rise in regulatory investigations by RICS and ARB into their members. These investigations are extremely stressful for those being investigated (and their families and friends).  We would strongly recommend that the question of whether or not an entity or an individual would be covered by such an investigation is clarified when insurance policies are being put in place.

What to look out for in 2023

The question of "who pays for cladding repairs" will remain a primary focus. More generally, next year's outlook for the UK construction industry is quite pessimistic given the current recession (in addition to Brexit, the war in Ukraine and the ramifications of the pandemic) and the ongoing increase in the cost of labour and materials. By way of example, in the residential housing sector, the third largest sector of the UK construction industry, demand is hard to predict due to the anticipated slowdown in UK house price inflation, which will inevitably impact the market.

The financial environment also means construction companies continue to be in a vulnerable position. Of course, in a construction project, when one company 'folds' it has serious consequences for the whole project. This can, in turn, lead to fingers being pointed at other parties to the project, who may have done very little wrong, to recover losses (particularly if they are, or should be, insured). This is likely to continue.

As well as the general interest rate rise, supply chain pressures (increased lead times and rising costs) and the demand for labour has inevitably led to increases in the costs of construction claims (i.e. the works required to correct an error). Unfortunately, this seems likely to continue. 

Written by Sarah O'Callaghan.

Download our full Annual Insurance Review 2023 for more insights.