16 May 2023

Bob Stembridge talks Structural Warranty & Latent Defects Insurance as Build-Zone turns 20

By Build Zone

Build-Zone was established in 2003 as a trading style of Sennocke International Insurance Services as a specialist Structural Warranty provider. April 2023 marks the 20th anniversary of the business that was acquired by Aston Lark in 2021.

We spoke with some of the senior management team at Build-Zone to look back over a period in which the business has established a key foothold in the construction insurance market, to understand what makes it so successful and to gain insight on the key changes they have experienced, and those on the horizon.

Bob Stembridge, Latent Defects & Structural Warranty Specialist, has worked for Build-Zone for ten years; his expertise within the financial markets as a Lender and then the insurance industry has helped the business grow sustainably.

What have been the most significant market developments/changes over the last 20 years for structural warranty and commercial latent defect insurance providers, and what has made Build-Zone so successful?

20 years ago, the NHBC controlled the warranty market and rightly did all it could to protect its> 85% share. The likes of Zurich and others gradually gained traction in the new homes warranty market, and once the lenders accepted other providers, the market opened up to competition. There is now more business in the market than any single provider would want to deal with these days due to capacity and risk issues.

The significant events happened longer ago than the beginning of the 21st Century. The era of change commenced with the 1985 Housing and Building Control Act, which allowed competitors to local authority’s building control service. NHBC’s entry into the market for building control was the catalyst for a new warranty provider (MMI’s Foundation 15) to assist the local authorities in retaining business. They challenged the NHBC in court and won, allowing developers to belong to more than one warranty provider.

Skipping forward, Zurich Insurance entered the market in the 1990s with a full suite of warranties and challenged the NHBC monopoly. This was the catalyst for other providers to enter the market. However, like so many providers, they have closed their doors to new business.

In your experience, what has been the greatest challenge facing structural warranties and latent defect insurance providers over the past two decades?

There are problems caused by the boom and bust culture of the UK economy in the construction and housebuilding industries. The peaks and troughs have seen ridiculously low pricing from some providers, which has kept rates below at times to the detriment of all. For the first time, we saw insurers go out of business which temporarily brought into question the validity of the providers. This was short-lived as the quality providers could suddenly provide cover for the owners without cover.

This is a distressed purchase paid for by the Developer to benefit the homeowner. In good times the warranty is seen as just another piece of paper to be obtained and hoops to jump through to get a compliant sign-off. In poor economic times, the value of the warranty comes into its own for the homeowner should the Developer fail to meet its obligations due to liquidation etc. The latter results in pressure on the insurers and providers just when new premium income falls as fewer new homes are registered. Claims increase, and pressure builds on the Insurer’s ratios, at which point some have pulled from the UK market.

To answer the question directly: Build-Zone’s choice of highly rated insurers offers continuity and a trusted two-way relationship. This, in my view, is the primary reason for our continued success and stability in an otherwise turbulent market.

The growth of the Approved Inspector market has, on the whole, been beneficial and provided competition for building control work. However, as the housing and commercial build numbers have increased, the number of qualified personnel has not kept pace. This has led to a shortage of inspectors. By Partnering with several Approved Inspectors instead of employing staff directly, we can meet the peaks and troughs of demand for inspections.

The cladding issues have woken the market to the risk of not performing checks on design, quality and materials. The significant factor has been the start of a thorough and ongoing review of inspection standards.

What makes Build-Zone stand out?

It’s our profile and the way we operate. Because we have an independent view of developments by working with external surveyors. We are respected in the market by lenders and developers and backed by ‘A’ Rated insurers. Our underwriting, administration, technical and customer support teams are all based in one building. This helps nurture the team ethic and works to benefit customers and staff. Build-Zone’s roots were in the self-build market for many years.

Whereas some warranty providers concentrated on the builder-developer market trying to keep/retain market share, Build-Zone grew the business organically from the self-builder to the smaller developer market and, in recent years, provides warranties to the sizeable multi-million-pound apartment developments you see in many large towns and cities. This means we are very customer-focused and in contact with the end policyholders and contractors.

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