Pensions - Articles - New 'lifecycle' insurance helps pension funds portfolios

Innovative real estate and construction insurance products are supporting the emergence of Britain’s corporate rental market as institutional investors develop portfolios of homes for rent.

 A major new report by City law firm Addleshaw Goddard and the British Property Federation claims that £30bn of additional funding could be invested in so-called Build to Rent developments.

 The report features investors such as Essential Living, Grainger, Legal & General and Hermes, along with insight from the likes of RBS, HSBC and Grainger Plc.

 Alongside this, Willis has outlined how innovation around real estate and construction insurance is offering Build to Rent investors security around risks and future costs incurred around forward-funding agreements they are signing with developers.
 The report says that new products are focused around covering Build to Rent developers through their projects’ lifecycle. As the schemes are being built and then held on to generate income – rather than being sold off to buyers – protecting income is all the more important.

 Lifecycle insurance products look closely at the designs and durability assessments a developer may have in place from an early stage. Willis explain how considerations start as early as development contracts are agreed and can cover liabilities up to 12 years after a scheme becomes operational.

 This new type of insurance product has emerged alongside the trend of developers looking to build and manage their projects for the long-term. Higher levels of protection are required around design than other development programmes to mitigate the costs that may hit developers with defective design, delayed completion, structural damage or poor materials.

 The report, titled ‘Build to Rent: Funding Britain’s Rental Revolution’, explores the growing appetite for rental development and is published on Monday 3 August.

 Lee Sheldon, partner, co-head of real estate at Addleshaw Goddard, said:
 “Construction costs and soaring land prices as, for many, more of a concern than accessing financing. Together with welcome support of the government-backed bond scheme, being managed by Venn Partners, the current horizon looks positive for financing Build to Rent. We can expect any remaining clouds to lift once the sector can showcase stabilised, newly created assets over the next two years.”
 Mike Carolan, director in Willis’ construction practice said:
 “By using market-leading software modeling, lifecycle insurance programmes are able to assess the most critical aspects of a building’s design; capital cost, life-cycle costs, maintenance costs, energy costs and general building performance and durability, better informing the decision making process.

 “However, with the increased competition and lowered prices around policies it is important that the actual cover and the financial rating of the insurers is also taken in to account”

 To view the report please click on the document below


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