Brick-Tie managing Director Bryan Hindle writes about insurance backed guarantees
My company has been issuing insurance backed guarantees for wall tie replacement and structural repairs for over 28 years. Most of these guarantees have covered a period of 20 years or so; in effect these guarantees, issued from 1986 to 1994 have expired now.
It fills me with pride; we met customer needs for this long and still do. One thing is clear though, after the work was done, almost all our customers never gave the guarantee a second thought and the guarantee we issued was never called upon.
Why is this an issue now? That is because of the credit crunch and financial meltdown, which happened in 2009. Our government, via the Financial Services Authority, is determined to make sure that if it ever happens again, people who bought insurance are protected. This is called ‘Solvency 2’ and has come as a bombshell to the insurance companies and financial institutions.
‘Solvency 2’ dictates, is that very long term commitments, such as an insurance backed guarantee for remedial work, such as wall tie replacement and structural repairs, must be backed by cash in the bank for the full term of the insurance cover. This means that the cost of very long insurance cover, for periods over ten years, will become prohibitively expensive. Solvency 2 means that insurance companies are phasing out insurance backed guarantees of more than 10 years.
A shame? Not at all
How many claims do you think Brick-Tie have received in the past 28 years? They can be counted on the fingers of one hand. Yes really; a few claims for cracking and such in all those years. This is testament to the high quality of my employees workmanship and our testing standards, which are industry leading. In addition, looking at these, I find that they almost always happen within ten years of the work being completed and the guarantee issued. Claims on work of ten to twenty five years old are virtually non-existent.
Are guarantees needed then? Well in my opinion they are still essential. However, the balance to aim for is to make sure that the insurance is for the full term of the guarantee and that the cost of the insurance is fully justified. The new insurance regulations are thus a very good thing. The costs of ten year insurance backed policies for our wall tie work is now a fraction of that which the twenty year cover cost. As my experience shows, the latter half of the old twenty year guarantee period were almost never needed, I’d say that now more than ever, insurance backed wall tie guarantees offer great value. It is in the early years following wall tie work or structural repairs, that any defects will come to light. Also, the credibility of guarantees is low when in the eyes of clients they extend for too long – I mean, twenty five or thirty year guarantees were always issued by small contractors, often with no insurance. Most were just marketing flannel. Even brand new houses costing hundreds of thousands or even millions of pounds come with a ten year insurance backed guarantee. I’m glad that now our guarantees offer the same balance of certainty and credibility.
Full ‘term insurance’ is available for the full ten year period on all our guarantees for wall tie replacement and structural repairs at much reduced cost, compared to the old twenty year system. I don’t like issuing guarantees without insurance to cover you – I’ve seen too many disappointed people, who have been left high and dry when problem happen and the contractor they used, didn’t cover the possibility of their own company’s demise. We’ve been around a very long time, but nobody knows the future – in my view it’s full term insurance or a guarantee isn’t worth anything.
Have a trawl on Google and you will still find lots of contractors eager to promise twenty, thirty or even lifetime guarantees. This is pure marketing flim-flam and remember that full term insurance for over ten years will cease to exist before the end of 2014. (this does not effect contracts already in progress which the insurers will still honour).
This is all quite complicated and a touch boring I know. If you would like a chat about your circumstances and an explanation of the finer points of insurance backed guarantees do please call me.
Bryan Hindle CSRT CSSW AIOSH