Jacob Austin 00:00:00 Hi all. It's Jacob Austin here from QS.Zone. And welcome to episode 101 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 101 is all about the insurance cover you absolutely must carry if you want to stay safe, compliant and stay in business. Remember, if you're new to the show, please do subscribe for more user friendly advice for all things subcontracting. Isn't insurance a pain in the backside? It forever feels like it's up for renewal and it seems hellish hard to get the right price. Your current insurer is guaranteed to put the prices up year after year, And if you shop around, you end up with quotes from Ian's internet insurance company, and it's really hard to know what to do for the best. So I'm not going to tell you because I'm not here to talk about car insurance, but the insurances that you will need as a subcontractor. And I'll also let you in on some little known facts about why global events affect your insurance premiums.
Jacob Austin 00:01:22 So let's start with the blunt truth. Construction can be risky. We work at height, we move heavy equipment, and we're juggling multiple trades in tight spaces to get the job delivered. We often design or specify specialist elements that must last for decades, and were building valuable assets long before the client is paid the final pound for the work. One fire, one fall, one design error can leave you staring at a claim that's worth more than your annual turnover, so insurance is there as the shock absorber that stops the impact from smashing straight into your bank account. Clients, main contractors and UK law all expect you to have the right protection in place, and they'll want to see the certificates before you're allowed on site or be paid a penny for most subcontractors in the UK. The core quartet of insurances are the employers liability, which is legally compulsory if anyone works for you. Public liability, which pays out if you hurt someone outside of your company or damage their property. Professional indemnity which covers errors in design, specification or professional advice.
Jacob Austin 00:02:34 And then contractors or risk insurance which ensures the physical works plant and materials during construction. So in today's episode, we'll break down what each policy is therefore, and flag up some common issues that you might have with them. So let's start with the good old employer's liability. This covers compensation, legal fees, and medical costs. If an employee is injured or contracts a disease even because of their work for you. Think if somebody working for you is crushed by some falling materials, all you have or suffers from long term hand arm vibration syndrome due to using breakers. This insurance is mandated by law, and it's the Employers Liability Compulsory Insurance Act 1969, which requires virtually every UK business that employs people to carry at least £5 million worth of employers liability insurance. The Health and Safety Executive enforces it, and for failing to comply, you can cop for fines of up to 2500 pounds per day and another £1,000 for not displaying the certificate. It applies to a wider net than just pay staff. If you appoint Labour only Subbies apprentices agency temps.
Jacob Austin 00:03:50 If you control how somebody works, you're probably their employees as far as the law is concerned. So you can't rely on everyone's a CIS subcontractor, so I don't need it. And you don't want a tribunal, the HMRC or an inspector to disagree with you on that? Contract conditions nearly always require the site of your employer's liability certificate if you're caught without valid cover. The site can buy you and the contractor can pass on any related delay costs so that time of the year where the contractor hasn't paid you because he hasn't seen your certificate. If you think of it the other way, they're actually being lenient with you because they've let you carry on without ejecting you from site and leaving you to mop up the bill for your labour just because they haven't seen a piece of paper. So some thoughts on helping you to comply with this. You could display or post your certificate where everybody can see it. Perhaps make it downloadable from a website so that it's always visible. Update your payroll estimates as you renew your policy if you have to claim on your insurance.
Jacob Austin 00:04:55 Having underestimated your wage turnover could invalidate claims or trigger extra premiums, which I'm sure nobody's going to thank you for. Record near misses. If you can demonstrate that you've got good safety procedures and you're all the while trying to improve your safety, this could help you negotiate lower insurance premiums, and it might help you avoid too big of an uplift if you have to make a claim on your insurance. Next up, we've got public liability insurance. It's also known as third party insurance. This covers injury to anyone not employed by you and damage to property that you don't own. If you happen to damage it in the course of your operations, it nearly always includes product liability insurance. If something you install later fails and then hurt somebody, but you are able to buy it either with or without that as an option, and you might find splitting the two apart can get you a cheaper premium. This covers you for things such as if a tele handler knocked over a stack of bricks onto a Tesla. A blowtorch sets fire to a neighboring flat, or a passerby tripping over a paving slab that you've left in the highway.
Jacob Austin 00:06:07 It includes things like compensation, repairs and court fees. Claims can hit 6 or 7 figures pretty fast, especially if there is some permanent injury involved. So this isn't one to scrimp on because you don't want to bust the limit and then become personally liable for that loss. Contract expectations on this are typically around £5 million for any one occurrence, and often increase if you're working in public spaces, schools, rail, airports, that kind of thing. Again, proof of insurance is required before site access. And again, when you renew your policy, watch out for conditions that require higher limits for hot works or for demolition. Some policy pitfalls. Throughout. There are high excesses. You might be looking at a cheap cheat premium, but then find yourself having to pay the first £50,000 as a self-insured amount. So make sure that you're willing to pay that excess and consider whether that's a good idea or not. Hot works exclusions. Fire is a hot topic, and welding, grinding and blow lamps might only be covered if you declare it to the insurer.
Jacob Austin 00:07:18 And if you've got appropriate risk assessments in place for it. You might also see some insurers restricting work on historic buildings or near things such as a railway. There are large losses involved in damaging these properties, so if you know you need to go working near one, check whether your insurance is going to be valid in that situation. Some best practice thoughts match your limit to the biggest exposure you're likely to take in the next 12 months, not the smallest. Keep a record of your method statements and your risk assessment if you have to defend claims to stop any spurious claims photograph pre-existing damage around the work area. And if you hire any specialist plant, then confirm that the agreement doesn't make you liable for any third party damage beyond your cover. Now, professional indemnity insurance. This covers losses arising from professional negligence such as faulty design, incorrect specifications, poor technical advice, or breaches of professional duties of care. If your drawings are calculations are wrong and the client spends £2 million on fixing the mess, this is what the Pi policy is there to pay for.
Jacob Austin 00:08:34 It's needed by anybody engaging in design. So if you've got design and build packages on your books for steel cladding, M.A. facades, temporary works even, or you're a specialist supplier certifying your own compliance with building regs, it may even be required if you sublet your design, but you're required by your contract to issue a collateral warranty. But simply put. If your scope includes design detail, select or specify in some shape or form, then you will need PAE, JCT, NEC and bespoke design subcontracts typically demand Pi limits from 250,000 up to £10 million for any one claim, and they need to be maintained for 6 to 12 years after completion, depending on whether your contract is executed under hand or under deed. There is a bit of a trap to be wary of with pi, and that is that claims operate on a claims made basis, so the policy must be enforced when the claim lands, not when the work was done. So this isn't something that once you finish the job, you can just cancel your Pi because you are insured.
Jacob Austin 00:09:45 Whilst you did the design, any claim that lands later would then be squarely placed on you. Uninsured. There's also the Grenfell effect after the 2017 Grenfell Tower event. Insurers of heavily reassessed cladding and fire safety risk and premiums have jumped by 200 to 400%. Cladding and combustible issues have become common exclusions and at the same time as premiums, jumping the cover provided has reduced because pie limits have tended to become capped in the aggregate, not on a per claim basis since prices have increased. There may be some things you can do about it, such as sharing your risk records, keep CPD logs, your records of procedures for checking, design, and even third party peer reviews. Demonstrating that you've got robust SCPs can help you knock off 10 to 15% off your original quote. Occasionally, you might consider buying a specific pie for one project. This might be sensible. If you're working on a particularly risky project, you might like to do this if you got specific exclusions on your Pi insurance, but the client insists on it in a given situation.
Jacob Austin 00:11:02 Next, we've got contractors or risks insurance. This is for ensuring the works before you've handed it over. It protects the project's physical works materials, often tools, and plant against sudden accidental loss or damage. Things like fire, flood, storm, theft, and even building collapse are covered unless there's a specific exclusion on your policy. Under most contracts, you carry the risk of the work until practical completion. And now what if you're almost finished with your roofing work and a freak gale the night before handover rips the tiles off and deposits them neatly in next door's expensive car collection. If you're not carrying contractors or risk insurance, then you're rebuilding on your own cost, and you're risking delay damages for the period that you light with a car policy the insurer pays to reinstate, and you can sleep sound. If your contract requires you to have car and you don't, then you will find yourself deemed to be self-insured. Some key features are the sum insured, which needs to be reflective of the reinstatement value of the work you're doing, plus an amount for fees.
Jacob Austin 00:12:19 You need to establish what your cover is extending to. If there's offsite materials, transit costs, hired in plant, plant that you own yourself and tools. Are there any key exclusions as well? Defective design or workmanship and wear and tear and gradual deterioration of work that you've completed. The resulting damage might be covered by the policy, but is the actual faulty part itself. If you find yourself in the position where you need to make a claim, you're going to need to evidence where you'd got to. Before the event itself. So this is where you need the good old quantity surveyors favourite the records. So progress photographs as often as you can. These can act as your pre lost condition evidence, and it will speed up any potential claim you make. If you can say here's the photos from the day before the fire and therefore you can establish how much work was done and how much needs to be paid to get back to where you were. Secure high value items overnight. If there's theft of your equipment on site, then your insurer will likely need to see forcible entry before they'll pay out for the claim.
Jacob Austin 00:13:36 And final tip is confirm a waiver of subrogation applies with your policy. Subrogation allows the insurer to step into your shoes legally after paying out for a claim, and it then allows them to pursue a third party for the loss that they've made by paying that claim. And that may mean if you've done something negligent on behalf of your company, and the insurer has to pay out for a claim, then they would have the right to sue you as the person who's carried out the negligent act to recover that money. A waiver of subrogation does away with that right, and it may save you personally a fortune. Now, what does nine over 11, the 2008 financial crash, the Grenfell Tower fire all have to do with your employer's risk insurance. The insurance market hardened significantly after these big events in 2001. The nine over 11 attacks caused something like $50 billion worth of insured losses. Insurers having to pay out numerous claims and somehow keep trading have suddenly found themselves making huge unforeseen losses. And in order to start recouping those losses, you guessed it, prices go up.
Jacob Austin 00:14:57 The reinsurance market, which is the way multiple similar policies can be packaged up and re insured, the prices of these deals doubled. And of course terrorism cover from standard insurance policies has completely vanished. In the case of the financial crash, insurers invest their premiums. They make extra money from doing that. So when the markets crash, their portfolio loses, their profits reduce. Shockingly, in order to try and offset that insurance premiums increase. And even if you've had an absolutely perfect year on site as a subcontractor, your insurance for that period probably jumped up by somewhere between 10 and 20%. That's a lot for nothing, because essentially the insurers were gambling with your money. Now, I'm sure if you asked her insurer, they tell you that they were doing that to try and make your fees absolutely as competitive as they could do, but I don't know. It feels a bit sneaky to me. Then we have the Grenfell effect that we mentioned earlier. This saw premiums tripling for insurance, with specific exclusions appearing for cladding and then widening to anything combustible at all at the same time.
Jacob Austin 00:16:16 A lot of policies switch from any one claim to aggregate limits, heavily restricting the amount that could be paid out. And a 2021 click survey showed 1 in 3 contractors couldn't buy the pie cover that they needed, and 60% of those people faced strict exclusions in order to do it. Records show it can take years for the market to soften again after this kind of tragedy. If you use a good broker, they will track the market and try and keep you informed. This might give you some advanced view that the rates are trending upwards, so you can allocate that bit more contingency to provide for next year's premium. And there you have it. Insurance in a nutshell. I hope that's helped you in some way. My mission with this podcast is to help the million SME subcontractors working out there in our industry. If you've taken some value away from today's show, then I'd love it if you'd share the show and pass that value on to someone else who'd benefit from hearing it. And of course, subscribe yourself if you haven't already.
Jacob Austin 00:17:24 And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.QS.zone for more information. Thanks again. I've been Jacob Austin and you've been awesome.
