Insurance increasingly sheltering high-risk construction industry
Insurance increasingly sheltering high-risk construction industry
Real estate and construction insurance are rapidly showing an upward trend in Cambodia as many high-rise buildings continue to sprout, increasing the need for property indemnity.
One of Cambodia’s largest insurance companies, Forte Insurance, is focused on two types of property insurance - engineering insurance that involves insuring buildings under construction, and insurance for buildings that are already opened for business.
According to the company’s managing director, Youk Chamroeunrith, insurance for the two sectors are currently riding a high demand wave - with engineering construction insurance in Cambodia surging from $1.8 million to $3.5 million in 2016, signalling an increase of almost double compared to the same period in 2015.
As for schemes tailored for existing and operational buildings, the insurance premium went up gradually from $11.6 million in 2015 to $12.9 million in 2016.
“The increase in engineering insurance is owed to the flourishing construction industry and the government’s regulation that requires ongoing building constructions to get insurance,” he said.
“High-rise buildings of five storeys or higher require their developers to purchase insurance due to high-risk factors. Meanwhile, the insurance on buildings in action are on the rise due to building owners becoming more informed.”
Chamroeunrith continued that insurance on buildings in action includes insuring against natural disasters like floods and storms, as well as fire outbreaks. Although this particular type of insurance is only showing a gradual increase because of the small pool of completed buildings in the capital, at the end of five years, a meteoric rise of this insurance is on the cards as most buildings undergoing construction now would have finished by then.
Furthermore, investors and developers who have injected millions of dollars into their commercial buildings would definitely want to get sufficient indemnity for their projects.
According to data from the Ministry of Land Management, Urban Planning and Construction (MLMUPC), the capital currently has 791 high-rise buildings five storeys and higher. This is a 163 percent increase from the number of high-rise buildings recorded in 2015.
Out of these 791, 474 are buildings of five to nine storeys, 249 are 10 to 19 storeys, 43 from 20 to 29 storeys, 17 with 30 to 39 storeys, and eight buildings that are higher than 40 storeys. As for borey constructions, the current total stands at 138.
Kim Heang, president of the Cambodian Valuers and Real Estate Agents Association, noted that according to the Ministry of Economy and Finance (MEF), project owners are required to purchase insurance plans in the name of risk protection, especially in a high-risk profession such as construction.“From what I know, construction site owners are obligated to get their projects insured, also since the insurance premium is within the suitable price range,” he said.
From a legal perspective, Mey Vann, director of the Department of Industry and Finance at MEF, said there were five insurance companies in Cambodia providing insurance for construction sites in the case of fire or individual risks.
The ministry’s law requires construction sites owners to purchase insurance in the case of accidents upon a third party. However, a law that requires completed buildings that are already opened for business to be insured has yet to be administered.
According to Vann, it all boils down to being responsible, with or without an actual law in place: “Constructors or construction sites owners are obligated to get insurance plans as part of being responsible for each of their construction site."
Tuy Bun, a shareholder of Residence L Cambodia, which specialises in condos aimed at the medium-income bracket, said his company had already purchased construction insurance and completed operations insurance.
He added that the cost of the premiums depends on the insurance plan’s conditions that cover customised aspects in regards to his particular company.
“Construction owners, condo owners, and owners of various commercial buildings must purchase insurance in order to get paybacks from insurance companies whenever anything disastrous happens,” Bun said.
According to data from the General Insurance Association of Cambodia (GIAC), it showed that by the end of the third term of this year, insurance premiums from the construction sector will hit $4.15 million – a 29 percent increase compared to the same period last year which was capped at $3.21 million.
