The impact of the Iron Sword War on the construction insurance industry in Israel
Apr 15, 2024
By: Itzick Simon
The insurance industry has undergone quite a few upheavals following the Iron Sword War. In the following short article, we will touch on some of the main points on this topic that relate specifically to construction insurance.
We should emphasize at the outset that the effects of the war have reached all areas of insurance in Israel, not necessarily just policies in the construction industry such as contractor work insurance, product liability, or professional liability. It appears that reinsurers abroad are reluctant in light of the war situation and prefer to reduce exposure to the Israeli market and examine their involvement with caution.
As early as November 2023, just a month after the October 7 attack, overseas reinsurers submitted demands to private credit insurance companies in Israel requesting a reduction in insurance quotas for the business activities of Israeli suppliers. A demand that even led to a discussion in the Knesset in light of the increase in the price of insurance in this sector by tens of percent since the outbreak of the war [ link ].
About a month later, in December 2023, the phenomenon also reached life insurance. Israeli insurance companies whose contracts with reinsurers were about to expire received instructions to exclude compensation in life insurance for deaths due to war, amid concerns about large numbers of civilian deaths [ link ].
What's happening in the construction insurance industry? Not only are the trends the same, but they are "dressed" on top of a continuing deterioration in insurance conditions in the industry, which began in 2019.
By: Itzick Simon
The insurance industry has undergone quite a few upheavals following the Iron Sword War. In the following short article, we will touch on some of the main points on this topic that relate specifically to construction insurance.
We should emphasize at the outset that the effects of the war have reached all areas of insurance in Israel, not necessarily just policies in the construction industry such as contractor work insurance, product liability, or professional liability. It appears that reinsurers abroad are reluctant in light of the war situation and prefer to reduce exposure to the Israeli market and examine their involvement with caution.
As early as November 2023, just a month after the October 7 attack, overseas reinsurers submitted demands to private credit insurance companies in Israel requesting a reduction in insurance quotas for the business activities of Israeli suppliers. A demand that even led to a discussion in the Knesset in light of the increase in the price of insurance in this sector by tens of percent since the outbreak of the war [ link ].
About a month later, in December 2023, the phenomenon also reached life insurance. Israeli insurance companies whose contracts with reinsurers were about to expire received instructions to exclude compensation in life insurance for deaths due to war, amid concerns about large numbers of civilian deaths [ link ].
What's happening in the construction insurance industry? Not only are the trends the same, but they are "dressed" on top of a continuing deterioration in insurance conditions in the industry, which began in 2019.
The workforce shortage and the insurance challenge
A key issue regarding construction insurance in the shadow of the war is the shortage of manpower. As of October 6, the Israeli construction industry relied on approximately 100,000 Palestinian workers (of whom approximately 20% are Palestinians).
As of October 7, these workers have not been coming to the sites, and there is real doubt about their future return. In the Ma'ale Ephraim Regional Council, for example, a petition is currently being filed by contractors against the council, which refuses to allow Palestinian workers into its territory. Despite the situation, the state has not yet been able to provide an alternative solution based on foreign workers, despite repeated statements on the subject by private and public entities.
The shortage of manpower leads to a lengthening of the project execution period, a longer period of exposure to claims, and an increase in the cost of policies.
A key issue regarding construction insurance in the shadow of the war is the shortage of manpower. As of October 6, the Israeli construction industry relied on approximately 100,000 Palestinian workers (of whom approximately 20% are Palestinians).
As of October 7, these workers have not been coming to the sites, and there is real doubt about their future return. In the Ma'ale Ephraim Regional Council, for example, a petition is currently being filed by contractors against the council, which refuses to allow Palestinian workers into its territory. Despite the situation, the state has not yet been able to provide an alternative solution based on foreign workers, despite repeated statements on the subject by private and public entities.
The shortage of manpower leads to a lengthening of the project execution period, a longer period of exposure to claims, and an increase in the cost of policies.
The shortage of manpower is one of the main reasons why we see dramatic delays in projects, and this is a point that must be emphasized in terms of contractor work insurance. This is because contractor work insurance cannot be "frozen" There is no such concept in the world of construction insurance.
On the one hand, the policy is limited in time, and on the other hand, it cannot be "frozen" even in the wake of war events. Even if the site is shut down due to fear of a missile attack or if its employees live in Judea and Samaria and haven't reported to work for months.
Furthermore, if the work is stopped for a period of more than 90 days, the insurance is not valid, and in such a case the insured is obliged to contact the insurance company to obtain approval for continued coverage under the conditions that the insurance company will determine, including protection requirements. In other words, not only is the insurance not frozen, but the insured is dependent on approval for continued coverage, at least for third-party damages.
Is it possible to "freeze" contractor work insurance?
If the work has not yet begun and the future of the project is uncertain, it may be better to postpone signing the contractor's policy until the situation changes.
However, if the work has already begun, and even if it is only in the very initial stages of excavation and evacuation, there is no choice but to have a dialogue with the insurance company for insurance continuity. The site is a dangerous place in itself even if there is no activity taking place there. See more information about this here, in the article by our engineer and insurance agent, Omri Nissany - " Empty and Abandoned Construction Sites - A Real and Immediate Danger ".
So what do we do?
The issue of reinsurers abroad, as mentioned, affects all insurance sectors in Israel , and even more so the construction sector . Even before the war, and even before the Corona pandemic, reinsurers abroad began to reduce the scope of construction insurance in Israel.
Steps in this direction began in 2019 following global insurance events and have reached here. For about 5 years, the construction insurance market in Israel has been suffering blows. Some of them are related to global trends and some are specific to us. Among the main reasons for the stricter approach towards Israel can be noted the large volume of work accidents on sites, and the right of the National Insurance Institute to file claims against insurance companies for compensation after paying compensation to victims.
This is compounded by project delays, with reinsurers concerned about their exposure time being extended. Many contractors and developers are having difficulty obtaining contractor work insurance for new projects in a reasonable time or receiving a response in the event of delays or extension requests ( read more here ).
Complex and high-risk projects even encounter outright refusal (such as, for example, the greatest difficulty in the field of construction insurance for conservation projects).
The attitude of overseas reinsurers towards the construction industry in a wartime climate
Encountering an insurance problem? Seek advice
In conclusion, if you have encountered an insurance problem related to the war situation (and in general), it is recommended that you seek advice as soon as possible from an insurance agency that is well-versed in the construction insurance industry and the changes that are constantly changing. You can often find worthy suggestions, including creative and out-of-the-box solutions.
In conclusion, if you have encountered an insurance problem related to the war situation (and in general), it is recommended that you seek advice as soon as possible from an insurance agency that is well-versed in the construction insurance industry and the changes that are constantly changing. You can often find worthy suggestions, including creative and out-of-the-box solutions.
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