Malta Insurance Association explains opposition to insurance requirement for contractor licence

Amidst the criticism from the Malta Developer’s Association and the Chamber of Architects toward the recently introduced legal notice regulating contractor licensing, the Malta Insurance Association (MIA) explained why it was in favour of removing the criteria for contractors to obtain insurance before getting licensed.

“During the consultation phase, the MIA made it amply clear that there is no such thing as an annual insurance to cover all risks,” said Adrian J. Galea, the organisation’s Director-General.

He went on to explain to this newsroom why insurance should not be considered a criterion for the issuance of a licence for contractors, giving the example of a driving licence.

“When someone becomes interested in obtaining a driving license, that person may or may not eventually drive. However, it is only when the driver decides to drive a car that insurance is required. This is why Transport Malta needs to ensure that motor insurance cover (an insurance policy) is available before renewing the annual road license,” explained Mr Galea.

Had this not been the case, he explained that the issuance of an insurance policy would otherwise be a determining factor in the licensing process.

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

He went on to say that, as is the case with most mandatory insurance policies, insurance cover is there to safeguard against damages to third parties.

“Damages are caused through some sort of action an individual engages in, and drawing a parallel with driving, insurance would be required for a contractor to be engaged in a project.”

He explained how each and every project a contractor is involved in posed different risks, adding that there is a difference in the risk of building a high-rise block and a terraced house or a garage.

Furthermore, Mr Galea said each project normally had a start and an end date.

“So, if a contractor is engaged in different projects, each with its own set of risks together with a start and end date, then one cannot possibly have an insurance policy covering the (individual) contractor when the risks of each project may differ,” explained Mr Galea.

“What if an annual policy is in place and the contractor concerned is involved in several projects and very different risks?” he asked.

He emphasised the importance of the risk needing to be spelt out before insurance cover can be issued, and that an insurer would issue a policy based on the information provided by the contractor about the particular project before works can start being carried out.

Alluding to obtaining motor insurance, he said it’s a similar situation, if there is no driving involved, no insurance cover would be necessary.

“These are basic concepts in insurance which the Insurance Association felt it should highlight during its discussions with the Ministry concerned,” added Mr Galea.

He shared that the risk was, if the original legal notice were launched without changes, contractors would not have been able to source insurance cover that the legal notice set as a requirement but ultimately did not exist.

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

Furthermore, he said that requirement for project-based insurance was not something new, as it was originally introduced through the Avoidance of Damages to Third Parties Act in 2013.

“At the time, the MIA was not consulted before this requirement was introduced,” reminded Mr Galea.

In conclusion, he said that the MIA believed that it was in the Ministry’s interest to ensure that ultimately, contractors needed to and were able to source insurance for the projects which they were engaged with, and that such insurance products were available on the local insurance market. Therefore, the legal notice had to be amended to reflect such objectives.