We might not yet have reached the end of January, but much has already been said this year on the issue of combustible cladding. The announcement last week from the Ministry of Housing, Communities and Local Government of a new national construction products regulator was a welcome start to 2021, which must be a year of action on this most important of issues.
We appreciate the incredibly difficult challenges that some leaseholders are facing both personally and financially as a result of the problems associated with combustible cladding. No insurer wants to put its customers in the position that some leaseholders are now finding themselves - facing significant increases to their building insurance premiums. That’s why we’re on their side in wanting to see this dangerous cladding removed and buildings made safe, as they should have been from construction.
Understandably, you might ask why insurers are increasing premiums for leaseholders if they appreciate how difficult it is for them. The simple answer is that insurance is a business based on pricing risk. There was no knee-jerk reaction to withdrawing cover, or increasing prices, in the immediate aftermath of the tragedy at Grenfell. But we are now almost 3.5 years on. The slow pace of getting buildings fixed means that insurers need to price their policies to accurately reflect the fire risk that too many buildings continue to pose and, unfortunately, that means that dangerous buildings are likely to face more expensive insurance costs. It’s also important to remember that this is not just about combustible cladding. The systemic failure of the building regulatory framework has also highlighted problems with building design, product testing and construction methods, especially where cavities allow fire to move almost freely around a building. As such, insurers are taking a more detailed risk-based assessment of buildings and, in many cases, can no longer rely on previous regulatory approvals that buildings are safe, nor that fire will, in fact, be contained by effective building design or construction.
We have been arguing for many years, including before Grenfell, that there needs to be fundamental reform of the building regulatory and safety system, which was a victim of successive Governments’ desire to cut “red tape”. Dame Judith Hackitt’s wide-ranging review of Building Regulations described the system as “not fit for purpose” and ultimately the high cost of insuring some affected buildings is a symptom of this problem. So, although a new regulator for construction products is a step in the right direction, there remains an urgent need for the Government to cure the underlying disease by stepping in to ensure buildings with combustible cladding are made safe. We must ensure that when politicians say “we cannot allow such a tragedy to happen again”, that their rhetoric is turned into action. That means getting on with the job of delivering the wholesale changes needed to make buildings safe as well as action to mandate the installation of sprinklers in newly built buildings housing the most vulnerable in society, such as in schools and care homes.
Insurance risk management teams will continue to work with owners to support efforts aimed at improving a building’s fire risk management options, such as installing high integrity fire alarms or sprinklers. We are committed to continuing our engagement with leaseholder action groups to hear directly from them about their concerns and what the insurance industry can do to help. We will also continue to work with Government Ministers and officials to provide our technical expertise and solutions to some of these policy challenges where we can. But, ultimately, insurance costs are a symptom of the fundamental flaws in current UK building stock and these flaws need to be fixed as soon as possible.
Some people have called for a reinsurance type scheme for combustible cladding - akin to Flood Re - to assist leaseholders but we don’t believe this is the answer. Establishing a public / private reinsurance scheme is a complex and lengthy process requiring primary legislation and regulatory authorisation – getting Flood Re from concept to Day 1 of the company took over five years. Leaseholders cannot – and should not – wait that long. In addition, Flood Re was a solution to a market failure where no other policy intervention could solve the underlying problem. Although a ‘Cladding Re’ is not the appropriate solution for this problem, the need for Government intervention to assist affected leaseholders is clear. The Government is currently considering options on how to fund the cost of remediation and, once funding is available and buildings are fixed, they are likely to be seen by insurers as lower risk, which in turn is likely to result in lower premiums.
All of this points back to one ultimate conclusion: where buildings are at risk of fire, we need to get them fixed. Hopefully 2021 is the year when we see real and meaningful progress - and the insurance industry will continue to play our part towards achieving that goal.