x
D
E
T
A
I
L
C
O
N
S
U
L
T
-
-
Doha, Qatar
Call Anytime
+974 70094404
The New Inherent Defect Liability Insurance [IDLI] in KSA and its Impact to Construction Sector.
Inherent Defect Liability Insurance (IDLI), which is simillar to Decennial Liability Insurance, has become a mandatory requirement for construction projects in Saudi Arabia. The IDI policy requires all contractors to obtain IDLI for “qualifying projects” from 2 May 2020 onwards. SAMA’s guidance confirms non-governmental, residential and non-residential projects fall within the realm of qualifying projects. This insurance is designed to cover defects in design, materials, or workmanship that could cause structural issues within ten years from project completion.
1. Mandatory Coverage:
- IDLI is compulsory for all private sector construction projects in Saudi Arabia. The policy must be in place before construction begins and covers the entire ten-year liability period post-completion.
2. Scope and Coverage:
- The insurance covers hidden or latent defects that become apparent after project completion. It includes defects due to faults in design, materials, and workmanship. The sum insured typically equals the total project cost.
3. Exclusions:
- Cover is subject to a number of specified exclusions, including for loss arising out of alterations of geological conditions, failure by the contractor to remedy issues that have become known prior to inception of the policy, pure direct/indirect economic losses and structural changes that have taken place during the period of insurance (unless these have been notified to insurers and an endorsement issued for additional premium, if appropriate).
4. Policy Premiums:
- The premium for IDLI is generally between 1.5% and 2% of the total construction cost.
5. Regulatory Framework:
- The Saudi Arabian Monetary Authority (SAMA) has issued standard policy wording and guidelines for IDLI, ensuring uniformity across all projects. This regulation involves coordination with various authorities including the Ministry of Municipal and Rural Affairs and the Saudi Council of Engineers.
6. Impact on Construction Sector:
- The introduction of IDLI is expected to enhance construction quality and safety by enforcing rigorous standards and regular inspections throughout the construction process. It also provides financial protection to contractors against significant claims related to structural defects, thereby stabilizing the construction industry's financial risks.
7. Benefits:
- Risk Transfer: Shifts the financial risk of latent defects from the property owner to the insurer.
- Financial Protection: Ensures funds are available for repairs without having to prove negligence or fault.
- Enhanced Value: Increases the attractiveness of the property to buyers and lenders, providing peace of mind that potential structural issues are covered.
8. Market Growth and Accessibility:
- The IDLI market is expanding, with more insurers entering the market, which increases competition and potentially lowers premium costs.
- There is also a trend towards making IDLI more accessible to smaller developers and individual homeowners, not just large-scale construction firms.
For contractors and developers, it’s crucial to integrate IDLI into their project planning and to work closely with insurance brokers and consultants to ensure compliance and optimal coverage,
Inherent Defect Liability Insurance is an essential tool for managing the risks associated with construction defects. Recent developments in the field are making these policies more comprehensive, aligned with modern construction practices, and accessible to a wider range of stakeholders. This evolution helps ensure that buildings are safer, more durable, and financially protected against latent defects, benefiting both builders and property owners.
Leave a Comment