A bridge too far

You would think a sordid secret had been uncovered. Anyone wanting to send an insurer scuttling for cover simply needs to say the word `construction' and they'll find that outwardly mighty companies start quaking in their boots.

There are a few notable exceptions. Zurich has nailed its colours to the mast as an insurer prepared to write construction business. Royal & SunAlliance (R&SA) is in the market, albeit treading cautiously. MMA specialises in the smaller end of the market and insists it is there to stay. Even so, they all want quality risks and rates are soaring, as are deductibles.

And these are the good guys, who stand out in a market of shrinking violets.

"We have no comment," was the unoriginal statement from AIG. An emailed message from Allianz Cornhill declared the account was "currently being reviewed and it was not appropriate to comment". Others just refused to return calls.

Mass exodus
Camberford Law managing director Richard Sheikh says his firm pulled out of wholesaling construction. "It's an area that is very difficult to control and liability is bad news. It's a sad state of affairs for brokers though."

St Paul exited the market last year. Independent has gone. The Underwriter is also believed to have temporarily stopped taking on new construction risks. Norwich Union has stated it no longer wants to take on large risks. Groupama is in the same boat although is still providing its Tradesmen Select policy, aimed at the self-employed or firms with up to eight staff.

As for Lloyd's, Abacus and RJ Wallace briefly suspended writing new liability business. It is understood that a couple of syndicates may still be writing business, but they are proving elusive. Calling Lloyd's press office to track these down proved fruitless.

The new chairman of Airmic, David Ireland, who is also managing director of Vinci Insurance Services, said that small contractors are going out of business because liability cover for dangerous trades such as roofing and scaffolding is almost impossible to get.

The industry faces new health and safety legislation. Insurers anticipate that the frequency of liability claims will increase, as new legislation is passed, which may include a ruling on corporate killing. Legislation is expected in the next parliament and will carry severe penalties for directors of offending companies.

No wonder brokers are close to screaming with frustration. Some even plan to throw in the towel altogether.

Take the case of Lincoln-based broker Mark Lawson, who owns ComInsure, a business that has traditionally specialised in higher risk liability business. "I'm getting out and am going to do a degree that will lead to a job doing forensic investigations for an insurer," he says.

Changing market
Not all brokers are in a position to be able to retrain and have the unenviable task of trying to find a carrier willing to take on a risk. Many worry they could lose long-standing clients if they fail.

So, how do insurers justify these punitive measures? Colin Short, head of UK commercial underwriting for R&SA, says that both the construction and insurance industries are to blame

"The UK construction industry has not, in general, been well managed. Safety standards are often far too low and the level of accidents is unacceptable. Added to this is the compensation culture. Insurers have been guilty of poor pricing. Construction has always been one of the worst performing sectors."

But, at least R&SA is still around and Short confirms it will come up with a price for most risks. He says brokers must get on the case early though, look to work closely with insurers and tell clients they may need to change the way they work if they want cover.

Zurich is the most bullish in the current market. Led by construction manager Carl Gebhard, it has recently launched a dedicated construction service, aimed at companies with a turnover of £1m or more. The focus is on risk management.

Three construction centres in Birmingham, Glasgow and Leeds are operating, dealing with core covers such as contractors' all risks, employers', public and product liability, material damage, business interruption and directors' and officers' (D&O).

Gebhard says: "A major focus of the service is helping construction companies dramatically improve their safety management programmes, which over the long-term will keep premium increases under control."

Zurich bases premiums on an overview of a construction company's business provided by their broker. Once this has been completed, Zurich Risk Services conducts an audit.

This will look at security, health and safety, legislation compliance and standards of management. Improvements will often be required before cover is offered.

Some risks may be referred to Zurich London, which concentrates on heavy civil engineering projects, roads, railways and dams, and the erection of large industrial facilities, such as refineries or power stations as well as general building and allied trades.

Hiscox is similarly aimed at the larger end of the market, specialising in projects. Construction underwriter David Turner says: "Underwriters have found liability is a nightmare. Not only are injuries sustained by workers, but there can be huge costs meeting public liability claims."

An example would be where a hole is drilled in the road, cutting though cables and blacking out businesses. Turner points out that this is often not through negligence as the operative may have no idea where cables are positioned.

Fraud can also rear its ugly head in the construction sector. While few insurers want to talk about it, there are cases where contractors wanting to recoup the cost of cover make a fraudulent claim.

"It's tough on brokers but underwriters are learning from bitter experience," says Turner.

The UK construction industry - in a nutshell