Cancelling your Contractors All Risk Policy During LockDown: Skype before you Type
BOUWEN CEO speaks about rendering advice in a time where clients are cancelling policies due to the Covid-19 lockdown.
By Michelle Hollenbach
As we get used to the slower pace of the construction industry, it seems that cutting costs is the order of the day. Our clients are taking book of the financial implications of the delayed, if not cancelled, projects that they have on their books.
Along with this comes much consideration of what costs can be cut during this time. It is understandable that insurance premiums are the first grudge purchases to be chopped, keeping our brokers and insurers extremely busy, covering their wickets. Let’s be honest: advisors would rather be spending time canvassing new clients than managing cancellations.
Good advice is of the essence, so simply accepting cancellation instructions from clients, without advising on the repercussions of- or alternatives to these cancellations can have serious financial implications.
Limiting cover to reduce premium, suitable for the current risk that the client faces during lockdown, is a responsible alternative, should the client understand the response of the short-term insurance policy in the event of a loss.
Unfortunately, a Contractors All Risk policy is not your run-of-the-mill policy and advisors should take precaution when simply taking cancellation instruction on these policies.
Annual renewable Contractors All Risk policies are generally policies issued for a 12-month period to cover all contracts taken on during a renewal period. When issuing a policy, all existing contracts are considered to make sure that they are either issued with run-on cover to the new policy, or they are sufficiently covered on another policy. The premium is based on the total value of contracts taken on during this period. If a policy is simply cancelled, all contracts that may be ongoing will be left without cover.
When we all return to our normal activity after this period, it is not as simple as just re-issuing the policy and “ta-da!…”, all projects are covered again. Instead, all projects that may have been covered on the previous cancelled policy, will now fall outside the scope of the new policy.
“Good advice is of the essence, so simply accepting cancellation instructions from clients, without advising on the repercussions of- or alternatives to these cancellations can have serious financial implications.”
Contractors All Risk cancellations present us with some scenarios and considerations:
1) Projects that are ongoing and sites that are still open are left without insurance cover: Has the client and his advisor considered the risk of a loss on these sites during lockdown? Can they afford a loss on one of these sites for their own account and have they taken the necessary precaution on site to limit these losses?
2) When the client is operational again and requests the advisor to re-issue the cover, will the new policy and/or re-issued policy cover the contracts that are existing and ongoing?
3) Is the client bound by his principal to maintain this cover at all times? Cancellation of this policy in this instance may place him in breach of contract, which will surely aggravate his financial difficulty.
The tragedy in this situation is that it will in all probability be the SMME client that is left exposed and who can least afford an uninsured lost. I say this not because these clients do not matter, but because your larger construction companies are usually experienced in managing their insurance portfolios and considering their risk when sending instructions to their brokers.
It is not all doom and gloom; the solution lies in good communication:
“Skype before you Type”:
Set up a call with your client and gather the necessary information on the projects ongoing, the progress and percentage completion of the project and the current situation on site. Relay this to your underwriter. With ZOOM, Microsoft TEAMS and Skype at your disposal, the recording of these conversations have become so simple, but can add value to all involved.
A few ideas that your engineering underwriter may present to you is as follows, but not limited to:
- Present an interim declaration of the contract values and ascertain whether the premium already paid in the insured period that has gone by is enough to cover the “run-off” of the projects that are currently on the client’s books.
- Negotiate a payment holiday and extension of the renewal period to relieve the premium obligations of the client until his income is stimulated again.
A trusted engineering insurance partner will hold your hand and guide you through your client’s options.
This will also ensure continuity in your cancelled book to retain clients once the lock down period has been lifted.
The caution is as follows:
Think before you simply forward a client’s instruction. This could mean serious liability to your institution and render you liable for poor advice.
We are here to help, whether it be our policy or not, it is all our responsibility to ensure that our clients get through this lock down period unscathed and sufficiently covered.
For more information on this and other topics, visit our website, our BLOG, or get in touch.
We are here to help.