Highlights of reinsurer requirements
Sep 12, 2023
By: Itzick Simon
The increasing involvement of reinsurers in construction projects in Israel requires increasing attention to their strict requirements in issuing contractor policies. Read here
The behavior of the construction insurance market in Israel depends largely on the reliance of Israeli insurance companies on the financial backing provided by reinsurers abroad, which are global insurance companies with extensive international activity.
In recent years, following trends we have discussed in the past (and which will also be briefly described at the beginning of this article), reinsurers have changed their approach towards construction insurance in Israel and around the world, and this has had significant effects on the local market.
In the following review, we will spotlight a number of new highlights that must be recognized regarding reinsurers' requirements when considering an application for the issuance of a policy for contract work. Both in comparison with the past, in analyzing the significance of things in the present, and in anticipating the future.
By: Itzick Simon
The increasing involvement of reinsurers in construction projects in Israel requires increasing attention to their strict requirements in issuing contractor policies. Read here
The behavior of the construction insurance market in Israel depends largely on the reliance of Israeli insurance companies on the financial backing provided by reinsurers abroad, which are global insurance companies with extensive international activity.
In recent years, following trends we have discussed in the past (and which will also be briefly described at the beginning of this article), reinsurers have changed their approach towards construction insurance in Israel and around the world, and this has had significant effects on the local market.
In the following review, we will spotlight a number of new highlights that must be recognized regarding reinsurers' requirements when considering an application for the issuance of a policy for contract work. Both in comparison with the past, in analyzing the significance of things in the present, and in anticipating the future.
2019 – Watershed line
Many mark 2019 as a watershed year in the relationship between reinsurers and construction insurance in Israel and around the world. This is because it marked the end of a decade in which a series of catastrophes caused reinsurers to incur huge payments (to the point of real losses).
With regard to construction insurance, these matters were reflected, among other things, in the insurance liability found in Chapter A of the contractor's policy - the property chapter. A chapter in which two of the coverages are earthquakes and natural catastrophes (NatCat).
As stated, a number of major natural events caused significant losses to reinsurers under this chapter, and led them to "recalculate their course." Among other things, by presenting plans to reduce losses and move towards stable profitability. The effect was felt all over the world. In Israel, due to a number of special characteristics, the blow was dealt with greater force.
Many mark 2019 as a watershed year in the relationship between reinsurers and construction insurance in Israel and around the world. This is because it marked the end of a decade in which a series of catastrophes caused reinsurers to incur huge payments (to the point of real losses).
With regard to construction insurance, these matters were reflected, among other things, in the insurance liability found in Chapter A of the contractor's policy - the property chapter. A chapter in which two of the coverages are earthquakes and natural catastrophes (NatCat).
As stated, a number of major natural events caused significant losses to reinsurers under this chapter, and led them to "recalculate their course." Among other things, by presenting plans to reduce losses and move towards stable profitability. The effect was felt all over the world. In Israel, due to a number of special characteristics, the blow was dealt with greater force.
A prominent example is the right of the National Insurance Institute to file subrogation claims in Israel against insurance companies, after payment of compensation for work-related injuries.
Quite a few reinsurers who examined their losses in the Israeli market have come to the conclusion that, as a result of this right of substitution, they are essentially taking on responsibility "through the back door" for coverage under Chapter C (employers' liabilities). Responsibility that should have been placed at the door of the local companies. This is when the National Insurance Institute sues the policy under Chapter B (third party).
This example is just one of many. Alongside the National Insurance Scheme, there are other characteristics that have raised alarm bells over the Israeli construction market. For example: the proliferation of high-risk projects (such as urban renewal) or the proliferation of work accidents. According to a report by the "Group for Combating Industrial and Construction Accidents" published in early 2023, the scope of work accidents in Israel is twice as high as the average in European Union countries [1] .
[1] https://www.ynet.co.il/economy/article/r1avn8o9i
What's different about us?
One of the dramatic changes regarding the reinsurers' new approach to the Israeli insurance market is the increased influence and involvement in low-to-medium value projects .
Until 2019, Israeli insurance companies (almost) did not need to turn to reinsurers for projects worth up to NIS 100 million. There were also companies that provided the "in-house" response even for larger values. Today, following the changes, reinsurers are also entering the picture for projects worth NIS 60 million or more.
Not only that, at our insurance agency, which has been involved in construction insurance for over 35 years, we see direct involvement of reinsurers even in projects in lower value categories of 40-60 million shekels. Similarly, the effects are noticeable even in projects worth "only" 20-40 million shekels.
In other words, there is a reduction in the independent capacity of Israeli insurance companies, and at the same time, more and more projects are being examined on a facultative (project-specific) basis.
Reinsurers are already entering the picture in projects that are considered medium-sized to small.
Several consequences characterize the increasing involvement of reinsurers in the issuance of policies. First and foremost, a 2-fold and even 3-fold increase in insurance costs (premiums) and deductibles. Similarly, we are witnessing a deterioration in the conditions themselves, as while the expansions have been greatly reduced, the scope of restrictions and exceptions to insurance coverage has increased.
Another important issue is the timelines for contacting with a request for a quote. As the capacity of Israeli insurance companies decreases, the number of contacts with reinsurers abroad increases accordingly.
If until recently, a request within a week or two was sufficient, today we are already talking about schedules of at least a month (and even two months) for non-complex projects worth up to 60 million. Not to mention projects worth 60-100 million shekels and more.
Insurance companies have actually learned what we have been strict about at the Itzick Simon Insurance Agency for years, which is that they must receive, in advance and in advance, the underwriting information that also includes a risk survey carried out by the insured. In high-risk projects, this is even more so. Moreover, since reinsurers are involved in the process, the documents must be submitted translated into English. Starting from the survey and ending with all consulting reports (soil, construction, groundwater, etc.).
Another implication is that special parameters have entered the stage of rigorous underwriting. Issues that previously would not have concerned insurance companies and their reinsurers are now considered standard and an integral part of pre-disclosure.
For example, procedures for the insured's response in the event of damage, procedures for preventing damage (such as a hot work procedure or a procedure for treating water leaks), preventive systems that were installed (or not installed) on the site, etc. Reinsurers abroad can also demand clarifications regarding the conduct towards occupational safety and the measures actually implemented at the insured's sites (in light of the worrying data regarding the Israeli construction industry).
Premiums and co-payments have tripled
Dealing with reinsurers' demands by providing a cure for the blow
Many clients ask us, rightly, how we deal with the trends described above. The answer, of course, is divided into two parts: First, it is important to act under the advice of an insurance agency that is knowledgeable in the field of construction insurance and that knows this world inside out. Second, wise policyholders are careful to distinguish between minor and serious in order to avoid as much as possible damage to property and/or body and to avoid the need to activate the coverage in the policy.
The requirements of reinsurers may seem strict, but they are also rules "written in blood." Dear contractors/developers, do not seek to "do the hard work." Follow safety instructions, address all risks, provide a response in advance, and avoid situations in which you incur damages that require coverage.
Remember that even if you received advice and negotiated, and even if the policy does cover you optimally on the day of the event, there are always damages that are not covered. Damage to reputation, delays in schedules, mental anguish, stress and heavy expenses. End of action with forethought.
Many clients ask us, rightly, how we deal with the trends described above. The answer, of course, is divided into two parts: First, it is important to act under the advice of an insurance agency that is knowledgeable in the field of construction insurance and that knows this world inside out. Second, wise policyholders are careful to distinguish between minor and serious in order to avoid as much as possible damage to property and/or body and to avoid the need to activate the coverage in the policy.
The requirements of reinsurers may seem strict, but they are also rules "written in blood." Dear contractors/developers, do not seek to "do the hard work." Follow safety instructions, address all risks, provide a response in advance, and avoid situations in which you incur damages that require coverage.
Remember that even if you received advice and negotiated, and even if the policy does cover you optimally on the day of the event, there are always damages that are not covered. Damage to reputation, delays in schedules, mental anguish, stress and heavy expenses. End of action with forethought.
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