Will the insurance cover it?

The large volume of building and infrastructure works heats the insurance market increasing business opportunities and allowing the offer of more sophisticated products and services

During the last years, Brazil had a strong acceleration in all the construction chain, driven by the huge volume of resources invested in infrastructure—after several years of postponed investments—and by the strong demand of works needed to carry out sport events such as World Cup of 2014 and Olympic Games of 2016. Associated to these factors, the reduction of interest rates, the scenario of controlled inflation, the increase in the employment offer and the stability of the economy gave favorable conditions for the growth of building construction, to attend the demand of the new emerging medium class and to reduce the lack of habitation through the supply of houses for the low-income population.

Insurance market knew how to take profit of this boom with very visible results in the modes of Home Insurance and Engineering Risk, that are the most demanded by the construction chain. Each new day, new products and services are presented to a more and more demanding and sophisticated market.

According to the Superintendência de Seguros Privados (Susep – Private Insurance Superintendence)—an organism of the Treasury Department that is responsible by the standardization and enforcement of the insurance area—Home Insurance grew 30.5 percent in 2012, compared to the previous year. This percent is very favorable if compared to the growth of 23.3 percent recorded in 2011, compared to 2010. Susep expects that Home Insurance increases its current participation of 23.3 percent in the market of “non-life” insurance (except health insurance). This expectation is based on the “boiling” of the building market, caused in part by a large availability of money for financing. The development of this industry depends mainly on credit—that was low and inefficient during decades.

According to Susep, the insurance policies of Engineering Risks had a paid total of R$ 458.3 million in 2010 and R$ 877.8 million in 2011. This represents an increase of 48 percent, more than twice the growth of the insurance market in the same time. This type of insurance ensures protection against risks that affect all types of heavy construction and infrastructure works.

Brazil is currently the thirteenth country of the world in insurance consumption.  There are 89 types of insurance officially available on the country with a very deep variety of detailing. For example, there are eight different types of civil liability insurances and 13 different types of insurances related to agriculture.

Home Insurance

People who buy a real estate with financing have to make a Title Insurance policy, since this asset is the guarantee for the loan in the financial institution. Although the similar names, this mode is different of the Home Insurance, that covers only physical damages to the building and is only available in financing situations, ending when the debt is closed by the buyer. The point in common is the total coverage of the debt balance in case of death or permanent disability, allowing the transmission of the asset to the inheritors and the total payment to the institution of real estate credit. The Title Insurance also ensures the indemnity or the reconstruction of the building in case of physical damages (DFI) caused by covered risks. Physical damages include fire, lightning, explosion, flooding, unroofing, total or partial collapse of walls, beams or other structural components of the building, or threaten of collapse.

Excluding the risks of fire, lightning and explosion, the coverage of the Title Insurance (DFI) includes damages caused to the property by external factors. In other words, it covers losses caused by events generated from outside to inside, on the building or in the soil or subsoil where it is built.

The Estate Insurance may be carried out through the Sistema Financeiro da Habitação (SFH – Financial System of Habitation) or through policies of insurance companies. In the first case, that is exclusive and compulsory for the real estate financed by the SFH, the conditions are established in a standard policy used by all insurance companies. Federal Government takes part in this operation through the Fundo de Compensação de Variações Salariais (FCVS), responsible by the liquidation of eventual debt balances.

Eventual losses in the Estate Insurance of SFH are assumed by the State. Insurance companies receive a standard wage by operational services rendered, based on a percent of insurance values paid monthly by the buyers together with the instalments.

According to the current rules of SFH, real properties to be financed must have a maximum market value of R$ 500,000 to ensure a financing limited to R$ 450,000. These values are updated yearly by the government. Operations of credit of values above these limits are attended out of the SFH, allowing the concession of credit through criteria of each insurance company, starting from conditions and standards established by Susep.

Title Insurance has no exemption and its lack of payment is applied only in determined situations. One of these situations is the death of the buyer by suicide. In this case, the coverage will be valid only two years after the policy starts. In the case of death or permanent disability, the insurance company may demand a lack of payment limited to 12 months for contract changes carried out to compose the income needed to approve the financing.

The coverage of this insurance in case of death by sickness will be valid only if the buyer became sick after the signature of the contract of financing, with no previous knowledge of the sickness. The coverage will also not be valid when the sickness is a proven result of a personal accident occurred before the date of the contract signature.

The coverage of permanent disability works in the same way. This risk will be covered only if it occurs after the date of signature of the contract of financing. For insurance purposes, permanent disability is consequence of a personal accident or sickness that results in the complete and definitive impossibility of developing the main occupation of the buyer at the moment of the occurrence. If the buyer has no work activity, he will have this coverage only if he becomes disabled to develop any work. In case of unemployment, this insurance does not cover the debt balance. Some companies offer a separate insurance for this situation, through an additional policy and payment. The Title Insurance also does not cover unpaid installments.

Insurance of Engineering Risks

According to Leonardo Loureiro, Coordinator of Intermezzo Insurances—that worked in the market of engineering and construction during the last 15 years—the insurance of Engineering Risks covers works of different sizes in the phases of construction, installation and assemblage. It also covers risks of fire, design mistake, civil liability (general and cross), extraordinary expenses, expenses for removal of debris, expenses of rescue and contention of occurrences, turmoils and neighboring properties, aggravated robbery or larceny, wind, hailstorm and damages to third parties, among others.

It also covers machines and equipment in phase of installation and assemblage, besides machines in operation. In the mode civil works in construction, installation and assemblage, the Insurance of Engineering Risks offers a wide covering and excludes a limited number of risks. For this reason, it is called all risks: every risk not specifically mentioned in the policy is automatically covered.

This type of insurance is also an important instrument to reduce project costs, since the insurance companies carry out a detailed study to mitigate the risks in the period that the works are being developed. This allows the maximum reduction of risks of accidents that delay the project and generate additional costs of labor and material. The Insurance of Engineering Risks also makes feasible project financing, since banks and financing companies require insurance contracting before the liberation of loans.

The Insurance of Engineering Risks protects the company or contractor against extraordinary expenses that may result of unexpected damages caused by machine work. Materials stored in the worksite that will be used in the construction are also covered. It is also possible to contract insurance for works of refurbishing, improvement and expansion.

The guarantee against risks involved in the activity is supplied basically by three modes of coverage: Civil Works in Construction (OCC), Installation and Assemblage (IM) and Machine Failures (QM). If the costs of installation and assemblage are above 25 percent of the total cost of the works or if these works are above 25 percent of installation and assemblage costs, the client has to buy conjugated modes. The alternative is an insurance of civil works in construction, installation and assemblage.

The insurance of “Machine Failures” covers the equipment of a company that is already in regular operation. It contains a specific mode for electronic equipment that protects against all risks of internal and external damages in computing and electronic installations. The application of the insurance of engineering risks is wide and it is recommended in all kinds of engineering, such as civil, electric, mechanical, metallurgic, naval, nuclear, etc.

The coverage offered by the market may be basic, special and additional. The insurance broker is the professional that may show the best association of guarantees to protect your company.