WTW recently held an expert webinar designed to support developers facing increasingly frequent and severe Rights of Light (RoL) claims. Specialists MX Underwriting, alongside WTW colleagues, discussed the benefits of developers working with brokers earlier than they might have historically. Such recommended moves are a response to the likelihood of facing claimants galvanised by the growing band of no-win no-fee firms operating in RoL.
This article considers more closely how developers can get the most out of these conversations, suggesting five questions to shape effective early broker engagement.
The changes in the market have not yet translated into refusals to offer cover, but premiums and excess levels are increasing.
In all but the most extreme situations, insurance is still likely to be available and therefore offer a cost-effective means of managing the risk, even where potentially injured properties have already made reference to their light in correspondence. In these cases, insurance serves the purpose of capping exposure rather than transferring risk through using agreed conduct mechanisms and property-specific deductibles that are likely to applied.
If your preferred scheme is likely to injure surrounding properties, engaging with parties early is hugely beneficial; forcing underwriters to make quick decisions almost always reduces the options and pushes up cost.
This has to be balanced with the need to present as many of the key details as possible, which are often only worked out as a scheme progresses. This includes details around which properties need to be approached for buildability discussions and even what the final scheme looks like.
Our advice remains to talk to a broker early, so they can help shape the information required to best present the risk to insurers while still leaving scope for changes as the scheme evolves.
One crucial pitfall to avoid is to sit on an offer. We have seen numerous examples of policies that if placed early would have saved thousands, as subsequent objections and claims have pushed up premiums. Staged policies can help in this regard.
The profit on a scheme is increasingly relevant as historic case law has consistently suggested that judges look at it more than the traditional book value methodology with an uplift when assessing damages in lieu of an injunction.
Known as the ‘Tamares’ principle—Tamares (Vincent Square) Limited v Fairpoint Properties (Vincent Square) Limited case—, a very rough rule of thumb is a third of the profit from the part of the scheme causing the injury could be awarded.
In a RoL context, calculating profitability is complex. At its most basic, it’s about what is the expected profit on the scheme. This gives insurers a high benchmark. If the scheme is causing significant injuries and is deemed a high risk, it may be necessary to ask your surveyor to carry out a cutback exercise, whereby it calculates the parts of the scheme that would have to be removed to avoid causing injury to specific properties. That can then be used to create an accurate idea of the profit being generated by those parts of the building causing the injury.
For our part, all the markets we use have to pass a high threshold to be considered WTW Market-Security Approved, this includes their resinsurance arrangements, funding and ratings.
We are constantly talking to our markets to get advance notice of any changes to their appetite, so we’re as confident as we can be that the markets we approach for your policy will still be able to place and service the policy in the future.
Of course, there is still potential for unforeseen withdrawals, but our approach is to do all we can to be confident of an insurer’s commitment to the market.
Most legal indemnity policies are ‘fire and forget’ in that they solve a problem and can then be shelved. Most RoL policies now require the insured to take certain actions and keep the insurer informed.
It’s important to be aware of requirements, such as agreeing a strategy with insurers in advance, before making approaches to proactive properties, keeping them informed of developments, or the lack of developments regularly, and being aware of deadlines for things such as light obstruction notices, which help to preserve the risk.
If you’d like to understand more about how developers can protect themselves in a hardening market for RoL, get in touch.
