Guarantees ? Why 10 years is better than 20
A letter for all our clients about your insurance backed guarantee, from our Technical Director
My company has been issuing guarantees on damp proofing, timber treatment, basement waterproofing and wall tie replacement for over 28 years. Most of these guarantees have covered a period of 20 years, so in effect these guarantees, issued from 1986 to 1994 have expired.
Whilst that fills my team and I with pride; that we met our clients expectations for all that time; it has thrown up some striking evidence, with regards to the worth of very long-term guarantees and the prospect of our clients claiming on them.
Why is this an issue now? That is because of the credit crunch and financial meltdown, which happened in 2009. Our government, via the Financial Services Authority, is determined to make sure that if it ever happens again, people who bought insurance are protected. This is called Solvency 2 and has come as a bombshell to the insurance companies and financial institutions.
In effect, what Solvency 2 dictates, is that very long term commitments, such as an insurance backed guarantee for remedial work, like damp proofing, wall tie replacement and waterproofing, must have absolute financial protection for the full term of the insurance cover. This means that the cost of very long insurance cover, for periods over ten years, will become eye-wateringly expensive. As a result insurers will shortly kill-off the insurance backed guarantee of more than 10 years.
A shame? Not really. I’ve reviewed all the guarantee claims we’ve received, checking how long it was from the work to the claim (yes, we do have problems occasionally – that is what guarantees are for). I find that the vast majority of these claims are received by us, within the first three years of a guarantees life. In addition, almost all the rest of the claims are received in less than ten years. In fact, the number of complaints/guarantee claims we’ve had, on work carried out over ten years previously is minuscule – a handful of claims in our 28 year history.
Of course, these clients were delighted that their work was covered. However, the very high cost of insurance means that the very few who would have a problem after ten years, are costing the most to cover. In effect, this drives the cost of insured guarantees up and the majority of customers who end up needing that cover, pay more as a result.
The cost of ten years insurance backed guarantees on remedial work, of the type we do for you, has fallen, as a direct result of Solvency 2. So everyone saves money and in reality you will still have the assurance that there is a policy in place to protect you. It protects you in that early to medium term, (ten years), where the any problems usually arise.
My preference has always been to offer customers a cast iron guarantee, which they can bank on. Without insurance, any guarantee is just a promise and may be worth less than the paper it’s written on.? We’ve kept our promises for over 28 years, but no future is secure in the complex world of today (ie; Northern Rock, Woolworths and Lehmann Brothers)
This is why ten years is actually a better offer than 20 years. Ten years is cheaper by far and our data shows that if ever work is defective, the problem shows up very quickly, usually in months or a few years after completion, rather than decades.
All our guarantees for remedial work are now standardised at ten years. Full ‘term insurance’ is available for the full ten year period, at a fraction of the cost of the old system. The insurance also brings the industry into line with the same term of insurance applying to new house builds and ends the ‘guarantee wars’ which happened in the past. During that time some unscrupulous contractors offered 30 years or even ‘lifetime’ guarantees on remedial work, knowing full well that they would never be called upon and often not honoured when they were, because ‘term insurance’ of more than 20 years has never existed. A quick google search reveals that there are still some damp proofing and timber treatment companies peddling this fictional protection.
I hope the above answers any queries you may have about guarantees. However Solvency 2 and the details of insurance is a complex issue. If you are still unsure do please drop me a line directly via the web site and I will call you personally.
Bryan Hindle CSRT CSSW AIOSH
Brick-Tie Limited T/A Brick-Tie Preservation