Construction firms could be denied insurance as insolvencies peak

Construction companies could start to be denied credit insurance by underwriters, according to a leading risk management group.

Insurance and risk management expert Aon has warned that the increasing number of insolvencies in construction means that credit insurance firms are shying away from committing to what they see as a risky sector. Credit insurance protects against bad debt following the insolvency of a client or contractor.

Aon said the spike in construction insolvencies expected at the tail end of this year could see credit insurance costs rise more than 10%, but could also lead to underwriters withdrawing cover for building firms.

We are predicting a severe increase in premium rates and an inability to negotiate long-term trade credit insurance arrangements

David Thomas

The group said the number of insolvencies in the sector would peak in the fourth quarter of 2008 due to cost pressures, payment delays, and the falling demand for work in the commercial and housebuilding sectors.

David Thomas, director for Aon Trade Credit, said: “With insurers’ loss ratios running in excess of 130% on recent years, we are predicting a severe increase in premium rates and an inability to negotiate long-term trade credit insurance arrangements.

"As a result, this is a very busy point in the UK construction insurance cycle and underwriters with commitment to construction are now at a premium.”