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Insurance brokers have a responsibility to ensure they know what design and building materials are being used and how they are assembled when they place insurance for a construction project, according to a good practices guide issued in the wake of the Grenfell Tower tragedy.
The Grenfell Tower fire, which experts have said could have been avoided, killed 72 people in London in 2017.
“The catastrophic fire at Grenfell Tower in 2017 was a catalytic event regarding the design and materials used in UK construction, particularly residential tower blocks,” the Society of Insurance Broking said in the guide released on Thursday. “Building and fire safety regulations were revised in 2018, and a Building Safety Programme introduced, resulting in greater clarity for tests and assessments to be applied to construction materials used.”
“With this in mind, insurance brokers also need to be aware of safe and recommended construction materials used so that they can provide effective coverage for their clients,” the London-based society continued. “Rather than just covering any type of construction material, insurance brokers should also be able to recognise, at an appropriate level, whether the construction project will meet certain regulations and standards. Whilst not expected to be experts in design and architecture, there should at least be a basic understanding of approved and recommended materials so that construction projects can be insured responsibly.”
The guide states that when arranging insurance for a construction project, attention should be paid to what construction methods are being used to complete the project, what materials are being used, which — if any — dangerous substances are being used, how things are being maintained, who is liable for damage incurred during the construction process, and who is liable for damage incurred after the completion of the construction project.
“The guide aims to enable brokers to identify, understand and accurately present construction projects and property insurances to insurers,” Kevin Hancock, chair of the Society of Insurance Broking, said in the guide. “To do so, brokers need to be able to communicate the nature of the various features and hazards involved in the size of the project or property they are insuring, including the physical hazards, such as fire protection.”
An arbitration panel recently sided with Munich Reinsurance Co. in a dispute over a reinsurance contract covering the property loss related to the fire. The panel decided against Oslo, Norway-based insurer Protector Forsikring ASA’s understanding of the contract and Protector declined to identify its broker on the reinsurance contract, but stated in a securities filing: “As Protector is of the opinion that the company has relied on advice from our professional broker, the loss will be discussed with them in the near future.”
“When insuring a construction project, by being able to identify important information such as the types of construction material used and how it has been assembled, the underwriter will be able to provide a more accurate policy wording,” the society stated in the guide. “The vaguer the policy, the less effective the coverage will be in the event of a claim. By identifying the materials used, brokers should then be able to consider the many different types of scenario that could cause a disruption, presenting their client with the safest and most comprehensive cover as possible.”
The building regulations do not provide a list of which materials contractors must use or any materials that are banned, the guide noted. “As nothing specific is outlined, the responsibility to determine ‘adequate and proper materials’ lays with both the construction and insurance sectors,” the guide stated. “This can make it difficult to determine with absolute clarity what materials comply with regulation as there is quite a broad range for interpretation (though asbestos is usually singled out as an exclusion on most policy wordings).”
The Association of British Insurers said that it had warned the British government of the dangers of flammable external surfaces on buildings a month before the Grenfell Tower fire on June 14, Reuters reported citing The Financial Times. The government said that 60 high-rise buildings in the country had failed safety tests carried out since the Grenfell Tower fire. The ABI said that it had been calling on the government to review building fire-safety regulations since 2009.