Editorial | All-risk insurance must be a pre-requisite for contractor’s licence

New regulations requiring building contractors to obtain a licence are a positive step forward after decades of inaction.

The new rules introduce a form of regulation for these operators that are a crucial cog in the building industry. The requirements are onerous but there is one aspect in the rules that is cause for concern - the requirement to have insurance cover on a project-by-project basis.

The rules make it incumbent on contractors to have insurance that covers liability for third party damages and injuries sustained by workers for individual projects. But the insurance cover is not a prerequisite for obtaining a contractor’s licence.

This means that individuals employing a licensed contractor for a job, or third parties living close to a construction site, have no a priori guarantee the builder has insurance cover. It will be up to the individual concerned to verify with the regulatory authorities whether the particular project is covered by insurance.

This leader believes that an easier system would be to have an online database accessible to the public of licensed contractors and one of the prerequisites for licensing would be insurance cover. This puts workers’ and people’s minds at rest that in the case of injury or damage to third party property, obtaining monetary compensation would not be an issue.

To this effect, this leader agrees with the argument raised by the Malta Developers’ Association that one of the prerequisites for a contractor to obtain a licence should be an all-risk insurance cover.

The argument put forward by Planning Minister Stefan Zrinzo Azzopardi against the MDA proposal was that the insurance sector had argued it was not prepared for such an eventuality. In fact, the original proposal to include all-risk insurance as a prerequisite was amended when the final version of the rules was approved.

This argument was repeated by the head of the insurance association Adrian Galea, who warned that if the legal notice ushering in the new rules had retained the original proposal, contractors would have been unable to source insurance cover. He was quoted by Times of Malta saying that such all-encompassing insurance cover does not exist in the market and insurers would rather discuss the risks for each project with the contractors and supply insurance cover accordingly.

However, this does not appear to be correct. There are market products available that do provide indemnity and most large construction companies and developers already have such all-risk policies.

Professions such as architects and accountants also have indemnity insurance covers, which shows that products are available on the market.

The probability is that insurance companies would be reluctant to provide all-risk indemnity insurance to some of the smaller players in the construction industry.

This could potentially lead to market consolidation with smaller players either folding up altogether or joining forces to create critical mass that would justify the insurance premium.

Politicians may not like the prospect of having contractors closing shop and laying off workers because they are unable to meet the higher standards but market consolidation is not a bad thing if this country wants to shift gear and aim for quality and sustainability.

The MDA is right when it says there should be no place for amateurs in the sector. Contractors and tradespersons involved in the industry must up their game or pack up and leave. The sector is intrinsically high-risk and we should not be exacerbating that risk by allowing amateurs to be involved.

The requirement for an all-risk insurance could be one way of forcing this shift. Government should reconsider its position on insurance cover and make it a pre-requisite for a contractor to obtain a licence.

To minimise the disruption, a two-year transition period could be allowed before the new insurance regime kicks in thus allowing the smaller contractors to build up a reputation with insurers, thus making it easier for them to obtain cover under the new regime, or else make arrangements to merge with other players.