Insurance Backed Guarantees – The 25 Year Long Myth

By James Russell In Insurance No comments

So, I have had a fair few calls recently from clients searching for a 25 year Insurance Backed Guarantee (IBG) for building works such as roofing, cladding, basements etc. They have been told there is one, there has always been one – so there must be one, right?

As someone who has worked in the market for far more years than I care to recall, I have seen these 25 year IBGs on building works. Just like dinosaurs, dodos and going to the bank without a mask – they did exist.

The problem really came when insurers started to look closely at their books and question whether they really wanted to reserve cash for 25 years, as they are required to do under solvency regulations where a policy runs for that period, rather than use it. Increasingly, insurers took the view that locking cash reserves away for that period of time just was not as profitable as writing policies with a shorter gestation period, where profits could be earned and invested more quickly.

So, inevitably, insurers gradually reigned in these periods to twenty, fifteen and now ten or twelve years. Even at these shorter periods, the number of insurers willing to write them is very limited. With the insurance market allocating increasing amounts to deal with the immediate effect of covid claims, the capacity they have (as well as the inclination) to write long-term Insurance Backed Guarantees is unlikely to change in the near future. In essence, they need to use the money now rather than in 2046!

So, my message to those needing an Insurance Backed Guarantee is this. Make sure your clients are aware that ten or twelve years is currently the longest available (unless anyone out there knows of an A rated insurer providing longer, in which case feel free to spam my inbox!). Differentiate yourselves when looking for a guarantee from insurers, produce strong accounts, give details or your experience and track record. The last year has been tricky for businesses to say the least, so up to date balance sheets and profit/loss accounts demonstrates that you are still a strong going concern that has done a great job trading through difficult times. That is part of our job – helping our clients get what they need to win tenders and win contracts.

In conclusion, two points:

1 – If you have a query on Insurance Backed Guarantees then give us a call.  We can help.

2 – If you see a dinosaur or a dodo, send me a pic. If you see someone without a mask in a bank – no pic required, thanks anyway!