Insurance Backed Guarantees – Gaps in Provision

It’s frustrating that I end up speaking so often about insurance-backed guarantees (IBG), instead of being able to focus on the great work our teams do remediating Japanese knotweed and other invasive species on site and the progress we are making on integrated pest management and environmental goals.

However, we have to accept that particularly for housebuilders and homeowners, IBGs are often the key part of our offer from a client’s point of view, and we want to point out a potential gap in some contractors’ provision.

It’s worth understanding that IBGs are not something that is particularly required because of the nature of the plant, or the damage it causes; they’re not required because of JKSL. IBGs are required because of banks, who generally require any mortgage to be covered by a Japanese knotweed management plan, backed by the security of an IBG.

The IBG covers only the risk of the company becoming financially insolvent and being unable to meet its obligations. With some policies, this cover starts from day one; with most policies, the cover starts after the successful completion of the recommended treatment plan.

Currently, JKSL is aware of only three providers of new IBGs in the market at this time – QANW (formally GPI) , Sennocke and Lloyds of London. There are a number of providers who have offered policies in the past, which are still valid, but these providers have now closed their schemes and are not accepting new business.

Performance bonds are also available, but tend to be more applicable to commercial projects; these may be available from a variety of insurers but they are different in wording and costs from an IBG and may well not satisfy a mortgage lender.

There are other reasons to have an IBG but JKSL already offer solutions for these concerns – if you are concerned about paying money for treatments and losing out if a client ceases trading, then payment plans and BondPay are both possible solutions – however, a bank or purchaser will often insist that the programme is paid for in full up front.

If you are concerned about growth occurring after the end of a recommended treatment plan (which is rare, but does happen), then JKSL can provide costs for additional visits and information about the likelihood of recurrence and the numbers of additional visits which generally take place – this may be a more attractive option than paying up front for an IBG (although there is an element of chance involved and either option could end up more expensive depending on how things pan out).

What JKSL can’t do is to provide advice on which product is right for your needs – this is because advice on financial products can only be provided by FCA (Financial Conduct Authority) approved companies – generally insurance brokers, mortgage lenders and other similar organisations.

So, to the main point of this blog: where a policy requires a period of two years with no regrowth, there is a potential gap in provision. The gap does not come directly from the IBG, but from a blind spot in some contractors’ provision which means that if the treatment plan is not successful at achieving two years no regrowth within the proposed time frame, some contracts do not specifically state what will happen and critically, who will pay for any additional visits required.

Japanese Knotweed Solutions will ensure that where a treatment plan with an IBG is taken out, visits are covered up to the point of ensuring two years of no regrowth.

When comparing quotes, is worth ensuring that the proposal you have received would provide this level of cover – as otherwise you can potentially be stung for additional unforeseen costs, or even risk not being covered by the IBG that you have paid for.

As always, JKSL will be upfront with all of our clients about what is required, what is recommended and what provisions will be included in any contract.

Speak to one of our team today to find out how we can help you.

 

Chris Oliver

Operations Manager

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