Extension of contractor work insurance
Oct 17, 2023
By: Itzik 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
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Why are projects delayed?
The reasons for project delays are numerous and diverse. They range from difficulties in implementing innovative technologies that could shorten timelines to the basic fact that construction in Israel has become significantly more complex and challenging. For example, in the residential construction sector, we are seeing many more high-rise and densely packed projects compared to the past.
Added to this are familiar issues such as difficulties in importing construction materials and equipment (from cranes to tiles and concrete), a constant shortage of labor, dependence on numerous professional parties, supply chain crises, and more. Alongside delays caused by negligence or lack of professionalism, there are other factors stemming from unforeseen events. Examples include security situations that hinder work progress or workforce availability, materials not arriving on time, unexpected extensions of construction works, and similar circumstances.
Sometimes delays are directly related to the contractor’s actions and decision-making: attempts to expand the project by requesting permits beyond the original approval, cash flow problems, commercial or personal circumstances of the contractor/developer, legal or professional disputes between parties on site, etc. Another reason relates to safety, such as serious work accidents, site closures for safety reasons, and similar events.
Extension of a contractor insurance policy under the changes in the insurance world
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.
Whatever the reason, construction delays in Israel are not uncommon, and neither are requests to extend Contractors’ All Risks insurance policies. It is therefore important to understand that dealing with insurers on this issue today is not always straightforward, to say the least.
A Contractors’ All Risks policy is generally purchased for a period of 24 to 36 months. For large projects insured through facultative reinsurance, involving an individual submission to reinsurers and specially negotiated terms, the period may reach 48 months or more.
The policy period depends on various factors, primarily the project’s value and nature. For example, large projects that do not require facultative reinsurance will generally receive 36 months of coverage, while smaller projects, such as those valued at up to approximately NIS 10 million, will receive a policy for “only” 24 months.
Before the dramatic changes in the construction insurance market in recent years, policy periods were not a significant obstacle to obtaining optimal coverage. Although insurance quotations were subject to specifications and negotiation, longer periods were often available even for projects of relatively low value. Consequently, most projects did not have to contend with extension requests.
The picture changed in 2019. After suffering a series of substantial losses, overseas reinsurers decided to tighten construction insurance terms worldwide. Israel was also affected, prompting local insurers to approach policy extension requests with greater caution.
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.
One issue that contractors and developers in Israel may be less familiar with is that processing times for policy extension requests have themselves grown longer. Insurers’ responses are far from immediate.
As underwriting becomes more rigorous and restrictive, and fewer insurers remain active in construction insurance, the workload on those insurers increases accordingly, significantly extending response and processing times.
Experience shows that requests can wait two months or more for a response, let alone approval of an extension. There are even instances in which insurers ask insurance agencies not to submit any extension requests for new projects.
This is why, as an insurance agency specializing in construction insurance for more than 35 years, we advise our clients not to leave extension requests until the last minute. While there is no need to rush the submission, it is equally important not to delay.
Understanding insurers’ workload matters not only when deciding when to submit a request, but also how to prepare it. For example, consulting a specialist insurance agency can help ensure that the request contains all the necessary details and supporting documents. Avoid a situation in which the insurer asks for information that could have been provided at the outset, resulting in a further lengthy and unnecessary wait for processing to continue.
The approach of insurance companies – conservatism above all else
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 complexities of requesting a policy extension continue even after the request has been received. Insurers may view delayed projects with suspicion, even when the delays are supported by reasonable and valid explanations. From their perspective, the extension request itself is a “red flag.”
Insurers will often demand a precise explanation for the delay and may send their own surveyor to reassess the insurance coverage. In almost every case, they will thoroughly review the claims history associated with the project and even the contractor.
An insurer may, of course, refuse to extend coverage because of multiple claims. More commonly, particularly in the current climate, it will impose special conditions, higher premium rates and higher deductibles.
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 construction insurance landscape has changed dramatically in recent years, and the difficulty in submitting a request to extend a contractor’s policy is just one example of this. Close guidance from an insurance agency specializing in construction insurance can greatly improve the insured’s starting position in any dealings with the insurance company.
When it comes to extending a policy, it is very important to act wisely. On one hand, you want to avoid submitting a “blank” request (which could trigger unnecessary back-and-forth with the insurer, even if the project could be completed on time). On the other hand, you should not wait until the last minute.
Insurance companies are under heavy workloads, and their processing and response times have lengthened. Without explicit approval for an extension, the policy will expire on the date specified—and not a minute later.
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