In the construction insurance sector, there is no competition law in Europe. It is rather free and therefore, the low cost companies have decided to cut prices. Moreover, one of the best-known companies located in Gibraltar recently went bankrupt. Which will have a serious impact on nearly 60,000 French people.
Many construction insurance contracts of the Elite Insurance Company LDT are affected by bankruptcy on September 15, 2020. These generally concern work damage, ten-year civil liability, professional civil liability, the non-performing constructor, the risk construction site, the individual house builder and even financial guarantees of completion.
Nearly 60,000 insured French people are left in the lurch with this company and this generally concerns construction insurance policies whose exposure period is fixed at ten years. These policyholders are invited to speed up the termination procedures. The ACPR announces that policyholders should contact Armor Risk and ACS Solutions for any information regarding this current procedure and the steps to take. The bankruptcy of this company is undoubtedly the consequence of blockages at the level of insurance companies.
Once again, this bankruptcy is the result of all the frequent problems that affect construction insurance companies. This situation is now at the heart of debates at the highest level of government. Julien Denormandie also addressed this subject to the general public during a conference organized by FFB or French Building Federation.
The insurance sector most often determines the success of a construction. If the insurance company collapses, the entire building collapses with it. Construction insurance in fact constitutes the act of building according to the current Minister of Housing. Bercy, on the side of Bruno Le Maire's office, also affirms that it will closely monitor the crisis situation and is considering the implementation of several levers in order to secure French policyholders in the face of such a situation. Thus, the ACPR or the Prudential Control and Resolution Authority was mobilized to ensure a control and justice operation.
What is the origin of this crisis?
To understand the origin of this crisis in construction insurance, we must go further back to the source of the freedom to provide services or LPS. The LPS results from European regulations which also apply to construction insurance companies and brokers. In other words, Article 56 of the Treaty on the Functioning of the European Union or TFEU indicates that natural or legal persons legally registered in a Member State have the right to the free provision of services and in particular, in matters of insurance, in another Member State. As a result, there are no strict regulations on construction insurance companies. Insurance brokers have benefited from construction tenders for years by adopting so-called “low cost” formulas from insurers in Europe. A low cost company is an organization that offers cheaper prices on its offers. In fact, these lower-priced formulas represent around 10% of the market. Thousands of individuals and real estate developers have therefore seized this opportunity to take out structural damage insurance or construction insurance called ten-year guarantees with low-cost insurers established in Denmark, Gibraltar and even Liechtenstein without necessarily assessing their solidity.
Result: most European insurers have opted for LPS to free themselves from French regulations and minimize financial provisions from those imposed by law on insurers in France. Consequently, after the consecutive bankruptcies of insurers established abroad and which operate in France under the regime of freedom to provide services, nearly tens of thousands of builders and project owners find themselves in a fragile state in the hexagon. In fact, since 1st July 2018, the FGAO or compulsory insurance guarantee fund is converted to work damage insurance contracts intended only for individuals. It should still be noted that the fund is not intended for professional clients, but only for individuals. As a result, the activities of companies and project owners are very threatened by the bankruptcy of insurers.
How to deal with your construction insurance situation?
According to Bercy, his firm recommends that professionals remain vigilant in the construction insurance market. In fact, you should be wary of the lowest prices offered, because they are misleading. The Ministry of Finance, for its part, also recommends contacting organizations, insurers or brokers, which practice what is called price dumping. To exercise caution, he advises policyholders to choose known, recognized and reliable providers. However, it is way too late for registered Elite Insurance members.
