The insurance premium for contractors is rising, and we will of course pay for it

Housing prices in Israel have risen by no less than 16% over the past year.

The reasons for this are many, including the insurance costs that have skyrocketed at alarming rates and rolled onto the shoulders of apartment buyers

David Rosenthal

24/05/2022

Tuesday, 24 May 2022, 08:02

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A sharp jump occurs at a rate of up to 350% in the amount of the premium paid by contractors for insurance coverage for projects.

This, according to the inspection conducted by the insurance consultant, Adv. Erez Kedem, who accompanies large real estate companies.

The data show that the premium for projects up to NIS 80 million until 2019 was an average rate of 0.28% -0.35%, while in recent years its rate has jumped to 0.28% -0.65%.

An even sharper increase was recorded in the pricing of policies for projects amounting to over NIS 80 million: until 2019, the average rate was 0.3% - 0.5%, while from this year the cost jumped by up to 350%, to a level of 0.35 - 1.35%.

The main reasons for the jump: First, due to the actuarial aspect and the increase in the amounts of compensation paid: the public is mainly exposed to accidents that end in fatal injury or death, but in practice, about one tenth of the work accidents for which Israeli and insurers are forced to pay compensation to victims and insurance benefits.

Also, the pace of construction in some projects is relatively slow, which prolongs its duration, and creates greater exposure to insurers, which translates into higher premiums. Actuarial for risk calculation.

In addition, the groundwater problem also bothers insurers and leads to an increase in the price of the policy: there is a risk of groundwater "waiting" for the project underground, and surface runoff and rainwater.

In recent years we have seen an increase in the number of claims arising from this risk,

And as always in such cases, the increase in the premium also reaches the consumers - we were the buyers, who had to pay more.

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Buildings in Ashdod March 25, 2021 (Photo: Reuven Castro)

The worsening of the sub-insurers 'position is also reflected in the level of deductibles specified in the contractors' policies, which rose by up to 1,200 percent.

For example, until 2019, the amount of the deductible in the property damage chapter reached in its maximum range up to NIS 100,000, but today it stands at about NIS 00,000.

Regarding third-party coverage - the jump is even higher: in the past, contractors were required to pay a deductible of up to NIS 50,000 in the event of damage, but today the amount ranges from NIS 20,000 to NIS 350,000.

The most significant jump was recorded in the employers' liability chapter: from a level of NIS 10-20,000 to a level of NIS 20,000-250,000.

The aggravation of the insurers' positions is manifested in other ways: the reinsurers search the tassels of the project and examine aspects that would not have been addressed in the past.

First, they 'undress' the main contractor and all the subcontractors: they study in depth the scope of the previous claims of each of the parties in the chain, both in terms of the frequency of damages and claims and in terms of their nature and scope.

In addition, reinsurers dive to the level of the safety inspector: they want to know where he studied, how long he has been in the industry and what accidents have occurred during his work.

Also, if in the past the underwriting procedure lasted about two to three weeks, today it is a period of one to two months.

Also, reinsurers pose tremendous difficulties and in many cases refuse to cover the risk of loss of revenue, which puts contractors and developers in serious trouble.

This is insurance intended to cover developers of income-producing projects due to an expected loss of income from a project, due to damage that occurred during the construction / construction period.

Erez Kedem (Photo: Yachz)

Israeli insurance companies usually only insure the first level of risk, up to NIS 100 million.

Beyond that, they are required to purchase coverage through a reinsurer.

The problem is due to the change in the underwriters' underwriting policy, the increase in the premium they are requesting and the difficulties they pile up in contractor projects insurance.

There is some deception here of the lending bank, as it is unaware of the fact that the Israeli insurance company has purchased Chinese reinsurance.

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