Extension of contractor work insurance
Oct 17, 2023
מאת: איציק סימון
התארכות משך הזמן להשלמת פרויקט לבנייה בישראל היא אחד האתגרים הידועים של הענף. אם הקמת בניין דירות בשנות ה-90 לא ארכה יותר משנה וחצי, כיום אנחנו מדברים על ממוצעים שנושקים ל-30 חודשים וצפונה[1].
[1] https://www.globes.co.il/news/article.aspx?did=1001413448
By: Itzick Simon
The lengthening of the time it takes to complete a construction project in Israel is one of the industry's well-known challenges. While the construction of an apartment building in the 1990s took no more than a year and a half, today we are talking about averages approaching 30 months and upwards [1] .
[1] https://www.globes.co.il/news/article.aspx?did=1001413448
Why are projects delayed?
The reasons for project delays are many and varied. From difficulties in implementing innovative technologies that could shorten schedules to the basic fact that construction in Israel has become much more complex and challenging. For example, in the field of residential construction, we see many more high-rise and densely packed projects (compared to the past).
To this must be added the issues that are familiar to all of us, such as difficulties in importing construction materials and equipment (from cranes to tiles and concrete), a constant shortage of manpower, dependence on many professionals, a supply crisis, and more. Alongside inhibiting factors that stem from negligence or lack of professionalism, there are other factors that originate from unexpected events. For example, security situations that create difficulty in carrying out the work or in the arrival of personnel, materials that did not arrive on time, unexpected prolongation of construction work, and so on.
Sometimes the delay is directly related to the contractor's conduct and decision-making: an attempt to expand the project by requesting permits beyond the initial permit, cash flow problems, commercial-personal circumstances of the contractor/developer, legal-professional disputes between the various parties on the site, etc. Another reason is safety. For example, serious incidents of work accidents, closing a construction site for safety reasons, and the like.
הסיבות לעיכובי פרויקטים הן רבות ומגוונות. החל מקשיים בהטמעת טכנולוגיות חדשניות שהיו יכולות לקצר את לוחות הזמנים וכלה בעובדה הבסיסית שהבנייה בארץ הפכה להרבה יותר מורכבת ומאתגרת. למשל, בתחום הבנייה למגורים, אנחנו רואים הרבה יותר פרויקטים של מגדלים גבוהים ודחוסים (ביחס לעבר).
לכך יש להוסיף את הנושאים שמוכרים לכולנו כמו קשיים בייבוא חומרי בנייה וציוד (מעגורנים ועד אריחים ובטון), מחסור תמידי בכוח אדם, תלות בגורמי מקצוע רבים, משבר אספקה ועוד. לצד גורמים מעכבים שנובעים מרשלנות או חוסר מקצועיות, קיימים גורמים אחרים שמקורם באירועים בלתי צפויים. לדוגמה, מצבים ביטחוניים שיוצרים קושי בביצוע העבודות או בהגעת כוח אדם, חומרים שלא הגיעו במועדם, התארכות בלתי צפויה של עבודות הבנייה וכדומה.
לעתים העיכוב קשור ישירות בהתנהלות הקבלן וקבלת ההחלטות שלו: ניסיון להרחיב את הפרויקט על ידי בקשת היתרים מעבר להיתר הראשוני, בעיות תזרים, נסיבות מסחריות-אישיות של הקבלן/היזם, סכסוכים משפטיים-מקצועיים בין הגורמים השונים באתר וכו'. סיבה נוספת היא בטיחות. למשל, אירועים קשים של תאונות עבודה, סגירת אתר בנייה מטעמי בטיחות וכדומה.
Whatever the reason, construction delays in Israel are not uncommon, and so are requests for extension of contractor insurance policies . Therefore, it is important to understand that dealing with insurance companies on this issue these days is not always smooth, to say the least.
A contractor's policy is purchased for a period ranging from 24 months to 36 months. In large projects (when insurance is optional and relies on a specific application with special conditions from reinsurers), the period may also reach 48 months or more.
The duration of the policy is derived from various parameters and depends mainly on the value and nature of the project. For example, large projects (that are not facultative) will usually be covered by 36-month policies, while smaller projects, for example up to 10 million shekels, will receive a policy from the insurance company for "only" 24 months.
In the past, before the dramatic changes that have occurred in the world of construction insurance in recent years, insurance periods were not a significant challenge on the path to optimal coverage. Although insurance offers were subject to specifications and negotiations, long periods were often accepted even for low-value projects. As a result, most projects did not have to deal with situations of extension requests.
The picture changed in 2019. After suffering a series of significant losses, reinsurers abroad decided to tighten the terms and conditions for construction insurance worldwide. Israel also suffered a blow that led local insurance companies to treat requests for policy extensions with extreme caution.
Extension of a contractor insurance policy under the changes in the insurance world
One of the issues that is less familiar to contractors and developers in Israel is that the processing times for extension requests have themselves become longer. The response times of insurance companies are not immediate, quite the opposite.
As underwriting becomes more rigorous and rigid, and as the number of companies active in the construction insurance sector decreases, the burden on insurers increases accordingly. A burden that greatly extends response and processing times.
Experience shows that inquiries can wait even two months or more for a response. Not to mention approval for an extension. In a sidebar, we note that there are even situations in which insurance companies direct insurance agencies not to submit extension requests for new projects at all.
This is, for example, the reason why we, as an insurance agency specializing in construction insurance for over 35 years, recommend that our clients not wait until the last minute to submit applications for an extension. While there is no need to rush into submitting the application, it is also important not to be complacent.
Being aware of the fact that insurance companies are under a heavy load is relevant not only to the date of application submission but also to the manner of submission. For example, it is recommended to consult with a professional agency to ensure that the application includes all the required details, contains the relevant documents, etc. Avoid a situation in which the insurance company will demand completions that could have been submitted on the first day, and now, when they were not submitted, you have to wait a long time (and unnecessary!) for further processing.
The processing times for extension requests have themselves been extended.
This complex situation of a request for policy extension continues in the processing stages after the request is received. Insurance companies may be suspicious of projects that have been delayed, even if the delays are backed up by logical and appropriate explanations. From their perspective, submitting a request for extension is in itself a "red light."
Often, the insurance company will demand to know exactly why the project is delayed and will even send a surveyor on its behalf to re-examine the insurance policy. In almost all cases, a thorough examination of the claims that were related to the project and even the contractor himself will be conducted. Of course, the insurance company can also refuse to extend the insurance following multiple claims, and will usually (especially at this time), set special conditions, high rates, and high deductibles.
The approach of insurance companies – conservatism above all else
Everything we have described so far is relevant to any construction project in Israel, and this is especially true when it comes to facultative projects. That is, large projects that are directly supported by reinsurers abroad.
In these cases, the extension request will require the involvement of the reinsurer and the matter will affect it throughout, from processing times to the response and its quality.
Reinsurers, before extending an insurance policy, will require comprehensive tests such as surveys, obtaining information, etc. If the specific reinsurer refuses to extend the policy, the insured is forced to find a solution in the form of another reinsurer to step into their shoes, and in large projects, they may have to locate multiple reinsurers. In short, a mess.
The difficulty of elective projects
One of the important issues to be aware of regarding the extension of a contractor's insurance policy is that silence is not "consent to extension."
If the insured does not receive an answer or response, the reason may be, among other things, the workload we mentioned. Without positive written approval for an extension, and after the deadline in the policy, there is no concrete insurance for the project . Although it is sometimes possible to request a temporary extension until a permanent extension, this is subject to the approval of the insurance company. Approval that must be clear, written and not ambiguous.
Don't rely on the insurance company's "silence"
In conclusion,
The world of construction insurance has changed beyond recognition in recent years, and the difficulty of submitting a request to extend a contractor's policy is just one example of this. Close support from an insurance agency that specializes in construction insurance may greatly improve the insured's starting point in any dealings with the insurance company.
When it comes to extending a policy, it is very important to proceed wisely. On the one hand, avoid a situation where a frivolous request is submitted (which could create unnecessary dialogue with the insurance company even though the project could be completed on time), and on the other hand, don't wait until the last minute.
Insurance companies are under a lot of pressure and their processing and response times have increased. Without explicit approval for an extension, the validity of the policy will expire as stated in it (and not one minute later).
עולם ביטוחי הבנייה השתנה בשנים האחרונות לבלי היכר והקושי שבהגשת בקשה להארכת פוליסה קבלנית הוא רק דוגמה אחת לכך. ליווי צמוד מצד סוכנות ביטוח שמתמחה בביטוחי בנייה עשוי לשפר מאד את נקודת הפתיחה של המבוטח בכל התנהלות מול חברת הביטוח.
ככל שמדובר על הארכת פוליסה, חשוב מאד להתנהל בחוכמה. מצד אחד להימנע ממצב שבו מוגשת בקשת סרק (שעלולה לייצר דיאלוג מיותר מול חברת הביטוח למרות שהפרויקט יכול להסתיים במועד), ומצד שני – לא להמתין לרגע האחרון.
חברות הביטוח נתונות תחת עומס רב וזמני הטיפול והתגובה שלהן התארכו. ללא אישור מפורש להארכה, תוקפה של הפוליסה יפוג כפי שנקוב בה (ולא דקה אחת לאחר מכן).
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