Updated 9.19 am with reaction by the Chamber of Architects below.

The Insurance Association of Malta has defended the government’s decision not to make insurance coverage a prerequisite for licensed contractors, saying “there is no such thing as an annual insurance to cover all risks”. 

Adrian Galea, director general of IAM, said that when consulted on new laws on licensing building contractors, the association argued that insurance should not be a requirement to issue a contractor licence and that such a product did not exist. 

“There are extremely valid reasons for this,” Galea said. 

A legal notice published last week stipulated that contractors licensed to carry out demolition, excavation and construction works must ensure that any work has an insurance policy covering third-party damages and damages to workers.

But the Malta Developers Association, the Kamra tal-Periti and the Association of Insurance Brokers have criticised the law, with the MDA describing it as “weak and ineffective”.  

The government should have drawn up an insurance policy for contractors as a pre-requisite to obtaining a licence, the MDA and Kamra tal-Periti argued.

MDA president Michael Stivala said an insurance policy on contractors as a prerequisite to licensing would create an additional filter to protect workers further and ease the mind of concerned third parties. 

The government reacted to criticism by saying that the insurance requirement was left out as insurers were unwilling to go along with it. Planning Minister Stefan Zrinzo Azzopardi said he was open to exploring other insurance options for contractors. 

Insurers: different projects carry different risks

Local insurers are sticking by their position. 

Galea said that issuing an insurance policy should not play a role in the licensing procedure.

“It is not the function of the insurance sector and/or an insurance company, but it is the regulator’s responsibility to determine whether the contractor has satisfied the criteria for a licence to be issued,” he said. 

It is not the function of the insurance sector and/or an insurance company, but it is the regulator’s responsibility to determine whether the contractor has satisfied the criteria for a licence to be issued- Adrian Galea, Director General, IAM

“When someone is interested in obtaining a driving licence, that person may or may not eventually drive. However, it is only when the driver decides to drive a car that insurance is required,” he said. 

Galea said that each project presents a different risk, and therefore insurers need to consider this when issuing a policy. 

The Periti Act requires architects and civil engineers to be covered by indemnity insurance.

The contractor will need to spell out the risks of a project to an insurer, who will then issue a policy based on the information. Only then can works on the project begin.

“The risk of building a high-rise block is very different to building a terraced house or a garage,” he said. 

During the consultation process for contractor licensing laws, the IAM highlighted that if the original legal notice was launched, “contractors would have been unable to source insurance cover that the legal notice set as a requirement but ultimately does not exist in the market,” Galea said.

An initial draft of the regulations stated that contractors would need insurance policies to operate; the law introduced last week modifies that requirement.

Rather than making insurance a prerequisite, the law states that contractors must ensure works they carry out are covered by an insurance policy.

“It would have caused chaos and confusion within the whole sector,” Galea said.

Insurers take a different stance when it comes to architects and civil engineers, who are required to have professional indemnity insurance in order to practice. 

Galea declined to enter into detail about why insurers are less comfortable insuring contractors. 

"Risks differ,  and so does the insurance cover or products available," he said. 

Architects: Several contractors have all-risk insurance policies

Architects were quick to poke holes in insurers' reasoning.

Several contractors have all-risk insurance policies, Kamra tal-Periti president Andre Pizzuto pointed out, meaning local insurers are able to offer such policies if they wished to. 

"The fact that different projects carry different risks is not the point. Insurers in such cases are insuring the contractor, not the project."

Pizzuto also questioned the logic behind the car insurance analogy presented by the insurers' association. 

"Drivers take out insurance to cover all their driving trips. You don’t insure yourself for each time you drive, which is what the MIA wants,"  he said.