The informal nature of many building contracts also means the builder could be without insurance themselves and any attempt to sue would not lead to an adequate recovery of damages.
Angela Hughes, Commercial Underwriting Manager at Standard Insurance Limited says homeowners doing even simple additions generally only have a standard homeowners insurance policy in place which excludes building or construction work. “This means that in the event of a serious claim arising from the construction work or alterations, ordinary South Africans could lose their homes as they would not have adequate insurance protection in place,” says Mrs Hughes.
“Homeowners can protect themselves against such risk in two ways. Firstly, ensure that the Builder you have engaged has adequate cover in place before commencing work. This cover must include a Contractors All Risk policy to cover the work done being as well as Liability cover. Secondly, the Homeowner themselves can purchase a Contractors All Risks policy covering the construction or alterations taking place.,” says Mrs Hughes.
A once-off Contractors All Risk policy and premium to cover the building work need not be cost prohibitive.
“These policies can be flexible, based on the project. Premiums start as low as R1,500 per project, it is important to take all the risks into account and not to just go for the lowest form of protection. For example, the policy should in most cases include a neighbour’s property in case of fire – just imagine the scenario of your neighbour knocking on your door after a fire and claiming damages for his house as well as yours. Speak to your Standard Bank Insurance Broker who can advise you and ensure that the appropriate cover is taken out,” says Mrs Hughes.
Your property insurance policy should be updated once the building is complete to avoid average applying in the event of a loss. Many only consider doing this at the annual renewal stage, which could be too late.
The dramatic increase in building activity across the country has broader ramifications when any injury is caused to the public at large. It is therefore crucial for contractors dealing with the public to ensure they are adequately insured.
Some professions are more vulnerable than others when it comes to public liability risk – those doing major construction and building work certainly count among those. “They face too many risks not to have adequate liability insurance in place,” says Mrs Hughes.
The number of accidents and related damage claims is on the rise as infrastructure development continues to gather pace. For example, there was national outrage and sadness when the temporary structure supporting the construction of a pedestrian bridge on Johannesburg’s main motorway collapsed ‚ killing three people and injuring 19. Reports soon emerged of inferior products allegedly being used and the different contractors were soon at loggerheads in court as to who was actually to blame.
In the corporate and commercial space, a dedicated contract and multi-peril insurance are crucial.
“This will take the most risks into consideration. On-site risks include risk/injury to staff, third parties, sub-contractors and the public. Protection for your materials, equipment, tools, surrounding property and transport all need to be considered. Contractors may also wish to take Professional Indemnity cover, which can provide protection for the advice provided, particularly important for Architects, Quantity Surveyors and the like.,” says Mrs Hughes.
“These contracts should also include an element of legal coverage as these cases can run into the hundreds of millions of rand and can drag on for years. There could also be questions and arguments about advice received from architects or other third parties,” says Mrs Hughes.
Often companies take on a contract without understanding the nature of the agreement and what happens if a risk event occurs.
Compliance standards need to be adhered to and these can be onerous, for example, if a warehouse is being built, fire equipment, SANS standards, taking square meterage and occupation load into account, would all need to be met.
“You may have a billion-rand contract with only a few lines dedicated to insurance – this is a drop of water in a very big ocean. There is an inconceivable number of variables and this is where you need experience and expertise to understand and guard against all the implications,” says Mrs Hughes.
It is important to be aware of the Insurance Ombud and building regulators are taking a very dim view of those who cut corners.
“Their key concern is for the man on the street and that users and end customers receive the best protection. They expect you to have known what you were doing,” says Mrs Hughes.
It is therefore important to think broadly when undertaking this work, for example, by listing in policy all sub-contractors and those from whom tools like trucks and graders have been hired and to ensure they have sufficient related coverage, or to top up where there is not sufficient coverage.
“Just one piece of hired equipment may be damaged and could cost R20m. It needs comprehensive insurance coverage, including coverage for the cost of hiring in an additional piece of equipment to replace the damaged one,” says Mrs Hughes.
Construction guarantees and performance guarantees are also an important form of insurance. “In this way, you can ensure the insurer takes on the risk of guaranteeing various terms and conditions – this will be determined by whether or not you are a builder of repute, have a good track record and income statement, for example,” says Mrs Hughes.
Cost concerns are raising the bar for all players in the industry.
According to a recent PwC Insurance Industry report, the current economic environment makes it important to strike the right balance between the retention of policyholders and the repricing of premiums. As the costs of claims rises a lot of focus will have to be placed on pricing risks effectively in order to provide value to customers.
“It is highly important that insurers leverage deep market expertise across Africa to price risks adequately to provide personalized tailor solutions for all consumers,” says Mrs Hughes.