If you’re a builder or developer, you likely need to buy Structural Insurance (or Latent Defect Insurance) for your new build project, but have you ever wondered what all the charges are for on your invoice?
At the end of the day, you are buying an insurance product for the property, and really what you are concerned with is getting your Final Certificate at the end of the build so you can sell the houses. That said, there are a lot of things that need to happen before that Certificate can be issued, and this is where a lot of the costs come in.
First, it’s important to know who all the parties are that may be involved in your transaction.
You are buying an insurance policy, do the underlying contract on completion will be between the owner of the property, and the insurance company that underwrites your quote. That said, you will almost never deal directly with the insurance company. Insurer’s appoint agents and brokers to deal with customers on their behalf. Some of these Agents have the full authority of the insurer in dealing with you, some are just brokers for the business, and will go back and forth between the customer and the insurer.
In many cases, these agents and brokers are acting on behalf of the insurance company, NOT the customer, although this is not always the case. Although they have a duty of care to all parties, you should check with the party you are dealing with to be clear as to whether they are representing your interests, or the insurers.
Regardless of who those agents are working for, you may also have your own insurance broker, or a third party that is finding the insurance solution for you, these introducers will typically engage with the party representing the insurer and either act on your behalf, or introduce you to the relevant party, in many cases for a fee.
So, the customer may have a broker, either the customer or the broker will engage with the party representing the insurer (or you directly to the insurer) and then you have the insurer itself.
It seemed so simple at the start. So, who are you paying and what are you paying for?
The FCA’s Insurance Distribution Directive requires parties that are providing you with a quote, to clearly set out who the insurer is, and a breakdown of what all the fees are for that make up the total invoice amount. If both of these things are not present on your quote, this should be a ‘red flag’ and you should query this before proceeding.
In most cases your price breakdown will include all, or some version of the following: –
Premium
This is the amount of money that is actually being passed to the insurer to cover your property. In some cases, there may be a commission paid from this premium to the insurer’s agent, and the balance (called the net premium) is what remains with the insurer.
IPT – Insurance Premium Tax
Just as the name suggests, this is a tax that must be applied to all insurance premium in the UK. It is, in some ways, similar to VAT on goods and services, but only applies to insurance.
Inspections
In order for the party dealing with the insurer to recommend the completed property to be covered, it is important for inspections to take place throughout the build programme to ensure that any issues that may result in a claim are identified and dealt with early.
These costs can also be called ‘Site Audit’ fee’s or ‘Technical Audit’ fee’s.
Risk Management
In some instances, the insurers agent or broker may have the authority to carry out underwriting, pricing, or other technical assessment work on behalf of the insurer. This work can range from simply packaging the risk and sending it to the insurer to underwrite, right through to full underwriting for the job. These costs and this work vary from party to party.
Commission/Introducer Fee’s
In the event that there is a third-party broker or an introducer involved in the transaction, they may be charging a fee, this fee should be listed on the quote or the invoice.
Additionally, the agent for the insurer may be receiving a commission from the insurer out of the insurance premium. This commission is not required to be listed, but if you ask, the agent does need to disclose it to you.
Conclusion
The nature of this type of insurance unfortunately see’s several parties in the transaction ‘chain’, and while this is typical; the fees should all be broken down on the quote and clear. If you are unclear about anything on your quote, or your invoice before you pay; you are within your rights to query any of it and ask for further clarification.
Always ensure that you know who the underlying insurer is, and what the fees are for that you are being charged.
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