Why Property Developers Need an A-rated Insurer for New Home Warranties

Posted by Build-Zone on 2nd February 2022 -

When you build a new property, it’s crucial you ensure it has a New Home Warranty in place so you can sell it easily and protect the buyer. But with a range of warranty providers in the market, how do you know who to choose? It’s simple – always go for an A-rated provider, or you risk choosing an unstable company that could leave you uninsured.

Firstly, what is an A-rated insurer?

In the event of a claim, it’s your insurer who is responsible for paying – so you need to be confident that they can. An A-rated insurance company has been, and will continue to be, assessed by leading international rating agencies such A.M. Best, Fitch, Moody’s or Standard & Poor’s (S&P).

These agencies carry out a thorough assessment of the insurers long term financial strength and it’s subsequent ability to pay valid claims.

A lower-rated insurer, such as a ‘B’ or ‘C’, is deemed to have a poorer ability to settle claims.

Unrated insurers on the other hand, do not qualify for a financial strength rating by these agencies, meaning there is no evidence of their ability to pay claims and their long-term stability has not been independently verified by these industry standard companies.

Also, for unrated insurers based outside of the UK, their local regulatory bodies may not also subject their insurers to the same rigors that the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) do in the UK. Many are also not part of the Financial Services Compensation Scheme (FSCS) which can provide some protection to homebuyers if the insurer goes into liquidation.

Why does this matter for my New Home Warranty?

New Home Warranties are long-term policies of 10 or even 12 years, which is much longer than the average annual insurance policy. When you take out a product like this, you need to be confident that your provider will still be running come the end of the policy period, or your property could end up uninsured and in breach of mortgage conditions.

That’s where the financial rating agencies assessment of an insurer should play a key part in the selection of your provider. It is incredibly risky to select an unrated insurer for any policy, but when it comes to long-term warranties, it’s particularly dangerous.

For proof, you only have to look at the bankruptcy of Danish based unrated insurer Alpha Insurance A/S in 2018 – which left around 21,000 homeowners without cover and caused well-established warranty provider CRL to go out of business.

Given the huge issues this caused, more unrated providers continue to appear in the market, often offering cheaper premiums that could ultimately come with a higher price – so it’s crucial you check the financial rating of your warranty provider’s insurer.

 

What happens if I don’t use an A-rated provider?

If the insurer you select goes out of business, that cheaper initial premium you paid could ultimately lead to you spending more money in the long run. Not only could you lose the premium you paid, but you will have to also buy and pay for another new warranty, so you can sell the property onwards, as many mortgage lenders require a New Home Warranty before they will lend funds to the buyer.

This could eat into your profit margins more significantly than simply choosing an A-rated insurer upfront.

It’s also more challenging to find a warranty retrospectively. This is because A-rated insurers will send out competent professionals to carry out technical audits throughout the construction process to make sure that the property is being built to a high standard and identify any defects early on.

If your property has already been completed or mostly built, it’s more difficult for your new warranty provider to assess the integrity of the build – so this will be reflected in the cost of your premium.

 

So how do I find the right provider for my New Home Warranty?

Luckily there’s a range of A-rated providers on the market who can offer structural warranties at competitive prices. Let’s look at what you should consider, so you can choose the right insurer from the start.

• Forward planning

Planning your project carefully and budgeting for your warranty requirements before you start is crucial. Ask your insurer about their financial rating (you can double check this yourself on the insurers websites) and make sure you find out about any conditions they may have, such as technical audits or site visits, so you can schedule them in to your plan to avoid unnecessary risks and delays.

• Check your coverage

Once you’ve established that your provider is A-rated and trustworthy, take a look at the cover on offer, including any exclusions or restrictions. Check your limits – does the policy cover the full costs to rebuild the property or is there are a lower limit? Are all key elements, e.g. ingress of water, covered for the full policy period?

• Technical audits

Different insurers will have different stipulations for providing your warranty. A good insurer will send out competent professionals such as surveyors and engineers regularly throughout the build to monitor progress, helping prevent any issues that may lead to a claim. Be wary of any provider who does not arrange site visits or only asks for photographs. Not only does this show a lack of care that could cause potential issues to be missed, leading to a higher chance of a claim, but the insurer is more likely to be unrated.

• Consider your customers

A New Home Warranty is primarily there to benefit your customers, and what’s best for them is most likely best for you too. Offering a warranty backed by an A-rated insurer will make your homes more attractive to buy and easier to sell in the eyes of mortgage providers, while choosing an insurer who follows a TSI approved ‘Consumer Code’ will show you’re committed to upholding high customer standards.

• Don’t judge by price alone

The most important thing to remember is that cheaper cover rarely means better cover. There are many unrated insurers offering cheaper premiums, but they will always be much riskier for long-term New Home Warranties and may offer a compromised service. So if a quote from a provider backed by A-rated insurers seems a little pricier, remember it comes with more reliable long-term cover, a better sales pitch for your properties and peace of mind for both you and your customers.

 

Do your research to get A-rated reassurance

As the demand for new build properties grows, the need for good New Home Warranties is growing too. With new providers flooding the market, it’s vital you know who to trust. That’s why you should always do your research into the financial rating of the insurer backing your provider before you choose your warranty. Only A-rated or higher suppliers have the verified financial backing to offer a 10 or 12 year insurance term and give both you and your customers the security and reassurance you need.

 

At Build-Zone, we understand how important this is – so our Build-Zone Warranty is backed by an A-rated global insurer and has received full approval from the Chartered Trading Standards Institute (CTSI). Plus, we make sure every case we cover is subject to a full technical review by Build-Zone Survey Services Ltd, so we can help you minimise any defects right from the start.

 

Get in touch today to find out more, arrange a New Home Warranty, or simply for specialist advice on insuring your next development. Just call our friendly and helpful team on 0345 230 9873.