A large home inspection firm has filed for bankruptcy as an insurance crisis grips the industry. Luc Barratt explains what this means for those involved in building new homes. Photo by Alamy
A home inspection firm is on the verge of collapse as an insurance crisis engulfs the industry. @lukewbarratt explains #ukhousing
Why are insurers turning away from private building control companies? And what could that mean for building homes? #ukhousing
A private building control company filed for voluntary liquidation. Why did this happen? And will it be the last? #ukhousing
Building control is an often overlooked part of the chain in the development of new homes, but it is a crucial element. This is the process by which inspectors approve developments as complying with building regulations.
In the aftermath of Grenfell, with hundreds of dangerous buildings revealed across the country, their work fell into the spotlight.
Now that scrutiny has turned into a crisis, with insurers refusing to back private inspectors, driving at least one, and possibly many more, to the point of liquidation. This could have serious consequences for housing construction in the UK.
Why do private companies carry out building control work?
Prior to 1985, building control work was carried out exclusively by local authorities. But then Margaret Thatcher partially privatized the service, allowing private firms called “chartered inspectors” to compete with councils. At first only one, the National House Building Council, took on the role.
But in 1997, shortly before leaving office, the government of John Major expanded the number of projects that could be certified by a private company, attracting more actors to the field. There are now 95 approved inspectors operating in the UK.
Dame Judith Hackitt criticized this system in her post-Grenfell review of building regulations, saying it allowed builders to choose their own regulator, resulting in a “race to the bottom”.
What is the insurance crisis?
In a nutshell, issues related to building safety and potential liability have scared off companies that provide professional liability insurance to inspectors.
There are only two licensed insurance brokers or inspectors: Howden and Griffiths & Armour.
Howden’s scheme insurer pulled out of underwriting its PI insurance at the end of last year, with the company trying to replace the insurer ever since.
Howden said Inside the housing that the strict insurance criteria in the sector set by the government in 1996 had not been changed to take account of today’s difficult market conditions and that the current situation in the sector had put “incredible pressure on the only compliant regime available”.
He added: “Howden has been working with our clients to resolve this issue and has been in conversation with the Department of Housing, Communities and Local Government for several months, recently submitting a comprehensive and detailed proposal for changes to insurance criteria. If it is accepted, it would provide a practical solution to the problem.
Licensed inspectors cannot operate without insurance and as Inside the housing revealed last week, a, Aedis Regulatory Services (ARS), has already filed a request for voluntary liquidation weeks after being unable to obtain insurance coverage. At the time of writing, it has not been confirmed whether the company has gone into liquidation. The liquidation concerned only the ARS. Aedis warranties are unaffected and remain an ongoing concern.
Approved inspectors are private companies that validate buildings as complying with regulations
Joe Ayre, Managing Director of ARS, says Inside the housing that Griffiths & Armor refused to take over the business because it “didn’t fancy taking on such an important client as us”.
Mr Ayre says Howden was willing to continue insuring it, but on different terms, which he sent to the Ministry of Housing, Communities and Local Government (MHCLG) for approval. According to Mr. Ayre, however, this request was refused. Inside the housing has contacted MHCLG for comment.
The ARS carried out inspections on 12,000 construction projects across the UK, which the company says represents 5% of the construction industry. This means that a potential liquidation could have a huge impact: delaying jobs across the UK.
An update from Griffiths & Armor to its customers – seen by Inside the housing – reveals that the company is more concerned about risk because of the “cladding and fire safety risk”.
He adds: ‘The tragic fire at Grenfell Tower naturally raised the profile of these issues in more detailed underwriting assessments in these areas of exposure.’
Griffiths & Armor hasn’t fully risen through the ranks, however. The update says the firm will consider each application “on its merits.” While at least one other was denied, Inside the housing is aware of a licensed surveyor who was insured with Howden but switched to Griffiths & Armour.
What could be the impact?
Construction projects could be at risk if the crisis drives inspectors out of the market (Picture: Getty)
The CICAIR letter, which was sent to all licensed inspectors, reminded them that they need insurance to operate and warned that if they are unable to carry out building inspections, they must post cancellation notices and notify the local authority.
Regulations prevent councils from stepping in to carry out building control unless those notices are published, but Barry Turner, director of technical policy at Local Authority Building Control, tells Inside Housing that in most cases, approved inspectors walk away without doing so. On these sites, work should legally stop but Mr. Turner adds: “Work on the site, to our knowledge, has not stopped. It is effectively unregulated. To our knowledge, no one inspects it.
Mr Ayre admits: “We are trying to work our way [the cancellation notices] but I’ve gone from 120 employees to eight a minute and most of them will be gone by the end of the week.
If councils are unable to intervene, the risk is that work will continue without building control (meaning safety issues could arise) or that construction at many sites could come to a halt.
A spokesman for the Federation of Home Builders said the insurance problem “has potential implications for housing supply”, adding that it “particularly affects small and medium-sized builders”.
In addition to ARS, 14 other licensed inspectors have insurance policies with Howden. Of these, four have already seen their policies expire and another four have policies due to expire in less than a month.
Jonathan Evans, chief executive of coating company Ash & Lacy, told a select committee of MPs last week: “We could be facing a crisis where nobody wants to do this anymore. It’s a real risk. »
What can be done?
Offices of the Department of Housing, Communities and Local Government (Photo: Getty)
If approved inspectors are able to push through the cancellation notices, the councils will be legally allowed to undertake the work, but it will put a strain on their already overstretched building control services.
It is possible that a new business could register to provide insurance, but this would require government approval under the rules for licensed inspectors. Similarly, reducing insurance company involvement requirements is within the power of government, but that would be a reversal given the post-Grenfell emphasis on public safety. As Mr. Turner says, “Where is the protection of the public?”
While the government decides, its housing construction figures, as well as the safety of unregulated projects, hang in the balance.
UPDATE: 12:30 p.m., 07/19/19 This article has been updated. The original article said that Howden and Griffiths and Armor were insurers.
Both companies are in fact insurance brokers for licensed inspectors.
The initial story also indicated that Howden had decided not to renew its insurance policies. Howden said that as an insurer he has no policies to renew. Howden’s scheme insurer pulled out of underwriting PI insurance at the end of last year, and since then has been trying to replace its insurer.
The article also now includes a full statement from Howden.