#Japan #Tokyo #Condominium Insurance #Nisshin Fire Insurance

New Condominium Renovation Guarantee Insurance: Expanded Coverage

In a significant development within Japan's real estate sector, the Joint Association for Condominium Assurance Center and Nisshin Fire & Marine Insurance Company have announced a major revision to their comprehensive 'Renovation Guarantee Insurance' for condominium repairs. Starting from September 2025, the insurance coverage limit will be dramatically increased to a maximum of 30 million yen, providing greater security for condominium management associations and owners.

Previously, this insurance was limited to 10% of the contracted amount with a ceiling of 10 million yen. However, under the newly revised plan, management associations can choose between 10 million yen and 30 million yen, aligning the policy with ongoing renovation projects worth up to 300 million or even 2 billion yen. This evolution empowers condominium management associations to prepare for potential contractor bankruptcy risks effectively and efficiently.

Background: Rising Bankruptcy Risks in the Construction Industry

According to a report by Teikoku Databank released in February 2025, over 127,000 companies face bankruptcy risks, with the construction sector alone accounting for 28,817 of these. This figure marks an increase of 4,445 since the previous year, as rising costs and labor shortages continue to strain the industry.

Condominium management associations often lack the specialized knowledge in construction and finance needed to navigate this complex landscape, placing them in a vulnerable position. Should a contractor declare bankruptcy mid-project, the associations typically bear substantial unforeseen costs for reissuing contracts, remedial work, and provisional expenses. This is where 'Renovation Guarantee Insurance' comes into play as a safety net.

Understanding Renovation Guarantee Insurance

This insurance product protects the contracting owner from losses incurred due to the bankruptcy of their contractor after a construction contract is signed. The key features of the policy include:

• - Policyholder: The contractor
• - Insured: The contracting party (condominium management associations or rental property owners)
• - Coverage Amount: 10% of the contractual amount (with caps at 10 million yen or 30 million yen)
• - Restrictions on Using Insurance Money: None—funds can be used for recommencement of work, legal fees, re-erection costs, management fees during construction interruptions, and additional expenses incurred.

For example, in a scenario where a construction project was budgeted at 200 million yen but the contractor goes bankrupt midway, the management association can receive up to 20 million yen to help facilitate a seamless transition back to operation, allowing coverage for necessary preparations, consultant fees, and any deals made with the previous contractor. This makes the insurance a reliable form of practical protection.

Rapid Adoption: 160 Applications and 75 Approved Contractors

For the insurance policy to be valid, contractors must first pass a stringent preliminary evaluation conducted by the insurance provider. This review intricately scrutinizes the contractor's financial health, ensuring only those who meet certain criteria are allowed to apply.

Since the launch of this insurance in October 2022 up until August 2025, 75 contractors across the nation have successfully passed this screening process, while the total number of insurance applications reached 160 properties. Remarkably, over 90% of solicitation came not from contractors but from management associations or architectural firms urging for the inclusion of this insurance in project bids, showcasing an increasing recognition of the policy's significance in light of growing bankruptcy risks.

Enhancement of Confidence and Transparency in Bidding

The Renovation Guarantee Insurance contributes more than just financial reimbursement. Its impacts include:
1. Deterrent Effect Before Signing: Since contractors must pass a pre-screening process, companies with unsound finances cannot participate, filtering out financially sound contractors for selection.
2. Assurance During Construction: Having this insurance allows management associations to proceed with confidence, knowing that unexpected challenges are backed by a safety net.
3. Support for Bidding Transparency: By mandating the insurance membership among bidders, the system mitigates the risk of collusion, promoting fair comparisons between competition.

Future Developments and Message

The Renovation Guarantee Insurance is continually refined through collaborative efforts by Nisshin Fire & Marine and the Condominium Assurance Center. The goal is to raise awareness on the efficacy of this system among more management associations and architectural firms while also encouraging standardization of insurance membership for contractors.

Looking forward, the construction industry is expected to face even murkier financial waters, marking the urgent need for comprehensive protective measures like this insurance. It's crucial to recognize that Renovation Guarantee Insurance is not merely a safety net; it’s a vital mechanism for ensuring trusted contractor selections and a part of the public infrastructure ensuring peace of mind.