Growth and Cover for Businesses

Nick Egdell, Managing Director of HomePro, looks at the nature and benefits of Insurance Backed Guarantees.

Offering home owners Insurance Backed Guarantees (IBGs) as part of a package of works is a superb means of enhancing their confidence - and a powerful marketing tool when it comes to increasing quote acceptances. Insurance Backed Guarantees (IBGs) have been in the building industry for many years and - although initially viewed with a degree of scepticism - few now question the concept of their validity.

As many homeowners become aware of the benefits of an IBG, so an increasing number see the availability of such a policy as a prerequisite to retaining a contractor. Offering IBGs benefits a contracting business in many ways: it helps differentiate a business from its competitors, especially those providing nothing more than 'letterhead' guarantees; it increases new business and sales conversions (by as much as 30%); it improves actual, and perceived customer service; reassures customers and enhances reputation.

Last figures from the Office of Fair Trading show a quarter of the population have used home improvement services, but around 60,000 formal complaints are registered a year - and at a cost, in poor works, to the consumer of £90,000,000! Similarly, over 10% of complaints logged by the Consumer Association in 2003 concerned home improvements.

Sadly, the kitchen and bathroom sector fares badly in complaint terms. In 2004, the British Standards Institute commissioned a report entitled Home Maintenance, Repair and Improvements as part of its Consumer Effectiveness Project. The report was concerned with identifying the ‘key categories of consumer complaint’. Within the main areas of concern, kitchen - and to an extent, bathroom - installations were writ large. Kitchens were the top area of complaint to the Consumer Association in the prior year, forming 23% of complaints, while bathrooms formed 8%. Builders in general only made up 14% of complaints; while the kitchen and bathroom total wasn't far short of that for double glazing, which was calculated separately.

In addition, complaints compiled by local Citizens Advice Bureau were reviewed. These – ‘though not considered to be statistically valid’ - showed kitchens (30%), as the main cause of consumer problems, then general builders (11%), followed by bathrooms (10%). Disappointing for the sector, all round.

The Government, not least as a consequence of this level of dissatisfaction, is minded toward IBGs. When it was in existence The Department of Environment, Transport and the Regions (DETR) suggested IBGs as a means of consumer protection. The position on IBGs had been expressed thus:

‘On balance...... [the Department] thinks that proper insurance-backed warranty schemes, which are widely available to consumers....would be of considerable benefit. As a general principle, it appears that they must satisfy four tests if they are to operate effectively:

* They must be provided by, or underwritten by, a reputable insurer;
* They should meet a minimum standard in which consumers can have confidence;
* The sponsoring body must require its members to operate the scheme and offer it routinely to customers; and
* They should be written in plain English and clear in their provisions.

More recently, the Office of Fair Trading (OFT) in both its advisory publications Having Work Done on Your Home: A Step-by-Step Guide and Having Work Done on Your Home: Organisations That Can Help; and through its new consumer portal, Consumer Direct, refers to IBGs as a mechanism for delivering confidence in tradespeople to consumers. Last but not least, the move towards Competent Persons Self-Certification Schemes - such as FENSA and ELECSA, in the double glazing and electrical installation sectors respectively - represent an arms-length attempt to regulate professional trades; and require IBGs to be available as a condition of accreditation. There is no doubt that the number and breadth of such schemes will only increase.

IBGs generally offer two differing levels of assurance: those which cover materials, all completed workmanship and work in progress for up to 10 years; and those which offer the same criteria as mentioned but also include deposit insurance for up to 25% of the contract value. The basic policies cover the work carried under the guarantee, including labour and materials. If the company ceases trading, the insurance covers the cost of completing the project so customers are not left out of pocket. When a project is completed, the customer, generally, completes a job satisfaction slip - upon which the insurance certificate is issued.

In the KBB sector, four-stage pre-paid products are offered covering deposits, stage payments, work in progress and quality of workmanship for up to a decade. Because it is pre-paid by the installer in advance, the cover is instant; and makes closing the sales process much easier, because customers are so much happier handing over the deposit in the knowledge that it is fully protected.

When the public choose their contractor they look for one who offers 'Pedigree, Product and Protection': being namely an established business, with an impressive product and fully insured guarantees against the monies paid. When you choose an IBG provider, one should do the same. Look for a provider that is UK FSA regulated, offering IBGs written 'onshore' - and one who is prepared to settle claims fairly and promptly.

Commercial work
IBGs value isn't limited to the domestic sector. Nowadays, many local authorities - especially for grant work - and architects insist those tendering for their work provide warranties; and IBGs are much less expensive than industry standard performance bonds. And the assured period is generally longer too. Commercial IBGs cover contractual obligations as well as any additional cost in completing a project if a company ceases trading.

Research has shown that the general public, as well as 'installation industries' themselves, is fed up with the negative image that rogue traders create. Apart from the need to 'hold one's head up in the pub,' this perception damages all installation businesses, as homeowners view calling someone as a 'distress' purchase and can be reluctant to undertake major improvement works at all, from fear of the hassle involved.

The cowboy will never go away, especially not while there are 'cowboy customers' wanting quick fixes on the cheap. However, there are opportunities where the true trades professional can encounter decent customers, wanting a good job at a fair price.

Tel: 0870 738 4858
Web: http://www.homepro.com