In a welcome development for the structural warranty sector, UK Finance is to issue recommendations to establish minimum operating criteria for warranty providers. These proposals represent a significant step forward in raising industry standards, ensuring consistency, and delivering greater protection for consumers and developers alike.
Build Warranty fully supports these advances, which align with our longstanding commitment to robust underwriting, financial strength, and consumer confidence. Clearer governance and regulation will help eliminate uncertainty in the market and foster greater trust in the products offered to homeowners and the construction industry.
Rethinking FSCS: A Mismatch for Latent Defect Insurance
A critical issue addressed in recent sector discussions—and one acknowledged by UK Finance—is the misconception around the protection offered by the Financial Services Compensation Scheme (FSCS). While the FSCS functions effectively in areas like banking—particularly in safeguarding deposits—it is ill-suited to the structure and complexity of latent defect insurance.
In practice, FSCS cover for structural warranties is limited in scope. It applies only to homeowners and not to the developers or builders who are the primary purchasers of these policies. Even where compensation is available, it is capped at 90% of the net premium—excluding broker commissions and property inspection fees, which often make up around half the total cost. As a result, the actual recovery may be just 50% of what was paid.
Worse still, FSCS does not cover claim settlement costs. If an insurer becomes insolvent, any subsequent claims for structural defects would not be honoured by the FSCS. Consumers would then be forced to seek retrospective cover—typically at double the original cost, with additional hurdles in underwriting and availability. This reality came to light in the aftermath of the collapse of Alpha Insurance and its UK distributor, CRL, in 2018, when many consumers found themselves without effective protection.
These limitations have led to mounting concern across the sector and growing calls to review the requirement for FSCS eligibility as a benchmark for warranty provider approval. The current system offers a misleading sense of security and fails to protect either the parties who fund the warranty or those who rely on it when issues arise.
A More Reliable Safeguard: Financial Strength and Solvency II
UK Finance’s focus on financial stability as the foundation of consumer protection is both timely and appropriate. One of the key criteria now being prioritised is that insurers underwriting structural warranties meet Solvency II requirements—robust EU-derived standards that ensure insurers hold sufficient capital reserves and operate under strict risk management protocols.
Unlike the FSCS fallback, Solvency II compliance ensures that insurers are highly unlikely to fail in the first place. This forward-looking, preventative approach offers genuine security to both consumers and developers and reflects the level of protection that Build Warranty has always championed.
Looking Forward
We believe the implementation of these recommendations marks a defining moment for the industry. A more resilient, transparent, and accountable warranty market will better serve everyone involved—from homeowners and developers to lenders and insurers.
Build Warranty stands ready to work with regulators, lenders, and industry partners to embed these standards and deliver a future-proofed warranty system. By raising the bar across the board, we can ensure that structural warranties fulfil their core purpose: to offer reliable, long-term protection and peace of mind.
