Insurance: show me the money!
Industry experts discuss the insurance requirements of FM firms
With the construction boom across the GCC in the last decade, the importance of insurance has increased. However, while the construction insurance market has reached a mature stage, when it comes to facilities management, there is still some way to go.
Professional indemnity coverage, for example, is important to protect one’s business. Companies can look to apply for coverage for a variety of needs including protecting the firm’s employees and in the worst-case scenario, paying for legal claims.
Figuring out how much cover is needed can be a quagmire, with detailed discussions needed on behalf of the client and brokers.
Problematically, it seems that many insurance organisations don’t realise the specific nature and requirements of the facilities management industry, and are now slowly waking up to the opportunities of the fledgling market.
Rohit Kapoor, group chief financial officer for EFS Facilities Services, Jennifer Peltenburg, senior manager – business development for Duserve Facilities Management, Ryan Darnell, director services for Khidmah, and Ilana Meyer, head of corporate solutions for Acuma Corporate Solutions, discuss the development of insurance in the FM industry.
So, do FM companies require the use of insurance firms, and if so, why?
Ryan Darnell: Yes, and it is not just one solution, it is many different insurance products. One that people usually forget is professional indemnity insurance. Another that I see missed out a lot is property insurance.
Even a lot of the tenants that we deal with don’t have their own insurance. So especially when you’re talking about a large tower, something that happens three floors above can impact the floor below — people don’t take that into consideration.
Ilana Meyer: But that’s not always the responsibility of the facilities management company though. It’s the contractor or the landlord, right?
RD: No it’s not. But a lot of the time, we’re relied on to communicate and push that through to the Owners’ Association manager or property manager.
Rohit Kapoor: But it all depends on the contract you have with your customers. Your customers always want you to get the insurance done for everything, whether it’s public liability or workman’s compensation and even for professional indemnity, because there are cases where you are providing both facilities management as well as technical know-how.
IM: Yes I think that’s something that’s overlooked a lot by less professional facilities management companies.
RK: And countries like Egypt, Kuwait and Saudi, they are very nascent in professional indemnity insurance. They have to cover from places like Dubai and Abu Dhabi, because they don’t have the facility or capability to provide it. And the way you have to judge professional indemnity is also very important. Some people or insurance companies don’t know how to do that.
Jennifer Peltenburg: I think what Ryan is also trying to say is that there’s an assumption in this market that an FM company is going to have all those types of insurance including within the tenant’s building, so it’s a matter of educating people in terms of what are the types of insurances you need to be responsible for.
IM: I’ve had conversations with different insurance companies and service providers. One half of the companies were very insistent that the first thing they raised was professional indemnity cover because it had always been something neglected in the past.
And I had another conversation this morning and the gentleman said ‘why would FM companies need professional indemnity cover?’ And this coming from an insurance company that should be providing this service.
So even in the insurance industry, there is no clear way of approaching it. The question should also be: do you need an insurance company or do you need a broker that can act on your behalf and place all the different levels of coverage you require at different companies because you won’t necessarily get everything you need in one place.
In what scenarios can FM firms can be financially liable?
IM: Oh, the list is endless.
JP: The easy ones are things are like obviously if one of our staff members gets hurt on-site, then we’d need to be covered. I think that a lot of these jobs, if you think of rope access, if you think of external façade cleaning, it’s obviously more high-risk. If you do a proper risk assessment and it’s QC’d and accredited, then you are able to actually look at the different premiums.
IM: It’s always good to take a broker’s point of view to take over the whole insurance portfolio, so you have a proper top-down view and know exactly what cover you have in place.
I’ve found a lot of companies that have two or three brokers and you end up having a lot of overlap which also is expensive, and sometimes there are gaps which are simply because one insurance professional didn’t have everything.
RK: I personally think it is better to have one insurance broker that can cover all your insurance needs. Premium is directly linked to the coverage that we take, and when you go through a broker, they are in a better position to tell us more in terms of coverage and premium.
IM: It’s part of your risk management strategy, isn’t it? Some companies might have internal insurance professionals, but most often I see insurance gets lumped off to the CFO, the COO or sometimes on HR. But HR are ‘people people’, they are not risk assessment so it’s a very different approach.
So it depends on what companies do internally. I think if you go back to your question on different scenarios, there’s been a couple of sad, if interesting, from a timing point of view, incidents in the market in the last couple of weeks.
RD: True. [We have to think about] what would be the impact on the business: whether that is loss of rent, or loss of operations for that property. And there are some checks and balances that we need to have in place for the insurance coverage.
IM: Which is part of your risk management process internally to make sure you have that in place. And fires of course — we’ve had quite a few fires recently. So it’s not just the loss of rents: whoever is responsible ends up having to pay the hotel bill.
It’s that the peripheral cost of not having insurance is actually more than the actual damage done by the incident in legal fees for instance.
When there is an incident you can have a 100,000 or 200,000 dirham claim, and spend that money on legal fees to prove you weren’t liable. Whereas if you had insurance, that would take care of it.
RK: That’s the reason professional indemnity liability comes into play – if you worked on the design with the architect for example. That’s why you need to take PI insurance — both for the FM as well as the construction company.
What is the impact and liability of FM firms not having the correct levels of insurance?
IM: Each FM company is different and each contract is different. There is general coverage, but you will always have specific needs for specific contracts, so the level of cover is determined by the level of risk, and by the potential loss if you don’t have cover.
RK: Nowadays customers are asking us about the level of insurance they need. One, the level of cover is driven by the customer. Second, the brokers play an important role because they know what exactly we can get. So suppose we have 10 contracts and all 10 have different requirements, we collate all the requirements and understand it all.
If you end up taking separate policies for each of the customer, the premium tends to shoot up. So the objective is to take everything under one umbrella until there is a specific requirement for a customer.
IM: So when you do end up with a situation where a facilities management company has tenders and clients with different requirements, you err on the side of caution. You would take the highest requirement, and one policy because it’s cheaper. So you might end up with more cover than you need but it’s cheaper for the facilities management company.
RD: It’s almost like an insurance policy spread across the whole board, and then you plug in the different contracts as they go through.
What are the risk management strategies on part of the facility manager and does this help mitigate liability?
JP: In any project that we do, we go through a checklist, in terms of the type of risk we’re looking at. And a lot of it is obviously based on the welfare of staff that are going to be there, as well as any potential incidents that could happen.
The idea is to do an initial assessment and then bring in an external person who does another assessment. We then work with the client to look at if there are things in these buildings that can cause serious accidents.
Then we say, right these are the priorities, these things need to be fixed first. That then holds us less accountable in terms of anything that will be liable for in the future but also from a health and safety perspective.
So for me, it’s not necessarily just about insurance, it’s also for the health and safety of everybody and making sure that the building is safe.
RD: Yeah it’s the same for us — we will do an internal risk inspection, audit, and a
disaster recovery plan for what we would think will happen.
IM: I think risk management is more than just that though. I think the whole risk management process and strategy that a company has in place has checks and balances: the training, the qualifications of the style, then going back and revisiting decisions, revisiting accidents, issues, cases, situations you’ve had, and implementing that, and following through and making sure that it actually gets implemented and that it’s not just another ‘tick-the-box-but-we-didn’t-actually-do-anything-about-it.’
So yes insurance plays a role, but at the end of the day it’s more of an internal management issue and how you can manage your business processes internally.
RD: Definitely. I say that if there’s a knock-on effect with the price, then sometimes it helps people make those decisions as well. I mean, whether it’s sustainability or the price of electricity goes up and there’s a push for people to reduce energy, so I see the same thing with risk. There’s a knock-on effect from the premiums as well.
JP: That’s what I was saying — it’s not just about insurance, it’s about doing the whole methodology behind it in terms of the health and safety aspect of our team and the clients and tenants. Yes you need insurance but hopefully also you don’t need insurance if you’re being proactive and actually doing the risk assessment and the strategy.
IM: Then you’ll end up having a claim-free year.
JP: That would be ideal.
RK: I think insurance will mitigate the risk. I think, as my colleagues said, it’s better that we do the internal assessment, understand that, then go to the insurance company.
Is more education needed with insurance in the FM industry?
JP: Yes, I think it requires a lot more education. To do risk assessment and to do that effectively, there’s a list of mental statements and checklists, but it does take quite a lot of time [to affect].
What I find, at least here, is that a lot of people don’t want to take the time. And ultimately then you’ll have the negative effect to that in terms of having these types of accidents, whether it’s fires, whether it’s car parks collapsing, or any myriad of things.
IM: I think you have to see the insurance industry against the backdrop of the commercial developments of the region. It’s only really been in the last two or three decades that things have really taken off here, compared to 200 years of history in the rest of the world from an insurance and construction point of view.
So when it comes from the construction side, it’s a very strong insurance industry. It’s a learning curve on both sides.
I think the industry is capable; I just don’t think it’s capable across the board and that you don’t have necessarily the right levels of experience, simply because it’s a new industry on both sides — on the FM side as well as the insurance side. Twenty years is not a long time.
RK: I think it will take some time for the industry to mature as compared to the construction industry. And similarly the risks which are associated with FM will also take some time for the insurance companies to understand.
So that’s the reason it’s a learning curve for both for the facilities management as well as the insurance companies to understand the level of risk and what insurance covers are required. But maybe the learning curve for this will be much faster as compared to the construction industry.
RD: It’s [to do with] economics — the supply and demand. I don’t think that the onus should be just put on the insurance companies or just on the FM companies. I think it’s also just the market dynamics.
And as the market matures and as people become educated, we’ll have clients actually start asking, ‘what insurance do you have?’ and not just ‘have you got insurance?’ It’ll start to be a normal thing and it won’t be differentiated between the FM companies because really it shouldn’t be.
IM: I think it is a very exciting market and it is a great time to be involved in this market, both from the facilities management side and from the insurance side.
Of course it’s a developing market, and because we actually had the opportunity of shaping how things are going to be, from the education and risk assessment point of view, this is definitely the right time to be involved in this market.