It is over five years since the UK government announced its plans for 14 new garden village projects. In this article we discuss some of the key risk factors and insurance considerations for those involved in the construction of such projects.

What is a garden village project?

The garden village concept was an expansion of the existing garden town programme, but focusing on small projects of below 10,000 dwellings. It was a key strategy in the government’s goal to meet the UK wide demand for additional housing. The TCPA defines a Garden City as “a holistically planned new settlement which enhances the natural environment and offers high-quality affordable housing and locally accessible work in beautiful, healthy and sociable communities.”

What are the key factors that affect the risk and insurance considerations of a garden village project?

Long delivery period

Garden village projects are normally delivered over an extended period of time, possibly decades. Housing is usually developed in this way to assist with build cost investment and infrastructure delivery will match the completion of the residential units. Insurance is not a static marketplace and premium pricing is dynamic. There are well recognised insurance market cycles, driven by the availability of underwriting capacity, that swing between hard and soft phases. Fixing insurance arrangements during either these phases can be disadvantageous to either the insurer or the insured, and is therefore unlikely to be possible or advisable.
Construction has been evolving rapidly in recent years. Advancements in construction technology are delivering faster, safer and more cost-effective projects. These developments are fundamentally changing the construction risk landscape. This reduction in the fundamental risk cost is yet another reason why long-term insurance solutions are not currently appropriate for garden village projects.

Multiple project types

Garden village developments are a composite of many individual project types. These range from the more straightforward erection of individual dwellings to complex civils and infrastructure projects. These more technically challenging elements might include additions to or interfaces with major transport or rail infrastructure, social infrastructure such as health or education facilities, retail and commercial units, as well as services and utilities for all of the above.
The risks associated with each of these projects differ and the insurance market approaches the various project types with different underwriting techniques. Insufficient distinction between these project types will result in the project incurring additional and unwarranted risk transfer costs as the insurers will rate the entire capital value based on the greatest risk type.

Multiple procurement methods

In our experience, garden village projects will encompass a number of procurement types. For example, the development of residential housing will normally be delivered by a housebuilder, typically funded from sales and/or balance sheet. This will vary significantly from major infrastructure projects, such as those involving transport interfaces, which may be part funded by the developer and local authority. Finally, commercial or retail developments may follow a more traditional project financed approach. The variety of these procurement methods dictates that one insurance model for all project elements will not be appropriate or cost effective. For example, the delivery of residential housing may be best insured under the housebuilder’s annual insurance programme, whereas a project financed commercial building may require lender mandated ring-fenced insurances, which also protect the revenue stream in the event of late delivery consequent upon damage in the construction period.
The insurance strategy for a garden village development must be flexible enough to cater for this variability in procurement method, or else additional unnecessary cost will be incurred without delivering value.

Multiple delivery partners

The broad spectrum of project type and procurement method invariably leads to considerable variability in contractor size and specialisation. Minor infrastructure works could be delivered by firms of a very different scale to major transport infrastructure interfaces or residential housing. Each different contractor will have an insurance programme with different coverage, limits and excesses. If the developer is relying on the contractors’ insurances for the project, a clear understanding of this patchwork of coverage is critical from an assurance perspective. It may also be prudent for the developer to seek some form of overarching protection to fill the gaps arising from inconsistencies in the contractors’ insurance programmes.

What insurance strategy should I adopt if I am a garden village developer?

Unfortunately, some brokers will look at a garden village development and see it as an opportunity to earn revenue from placing a traditional, all encompassing, ‘owner controlled’ insurance programme. At Miller, we believe that this approach is fundamentally flawed as it does not recognise the first three of the key challenges we have outlined above. The insurance strategy needs to be specific to each type of project being delivered and coordinated with some umbrella level insurance to ensure that all parties have consistent coverage and protect the project and its reputation.
The key to this is detailed evaluation of the individual projects forming the overall development. This should be conducted in conjunction with a review to determine the development interfaces and potential liabilities to other parties.

How can Miller help?

We recognise that all garden village projects are a unique blend of project type, procurement method and financing. In addition, the development periods are usually very long, bridging market cycles and outliving evolutions of construction techniques and materials. This is why we firmly believe in designing bespoke and flexible solutions. Our objective is to find the most appropriate risk strategy for each project element and combine these into a professionally designed, fit for purpose insurance programme. Our experienced specialists will advise on levels of coverage, limits of indemnity, retained structures, deductibles, protection of revenue stream and financial loss to help you achieve the most appropriate programme, all at the best price.

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