What You Should Be Doing To Avoid It
“In Crisis”, is not an over-exaggeration when describing the current state of the Professional Indemnity Insurance Market for the construction sector.
The combination of increases in professional indemnity (PI) claims from the UK construction sector coupled with major catastrophes such as the Grenfell tragedy and Carillion’s financial collapse, have created a “perfect storm” accelerating the “hardening” of the PI market.
Most commentators predict a continuing deterioration in the coming months within the industries PI market; as a result, adequate PI cover will become more and more difficult for any firm involved on the construction sector to secure.
So, what is a hardening PI market, what causes it, what impacts will it have on the sector and how do you help avoid, or at least mitigate its effects on your business?
Hard Market – what is it and why?
In short, when demand outstrips supply and premiums inevitably increase, we categorise the market as a hard market.
There are a number of market and industry conditions that have led to this:
• Claims – The key driver has been the increase in PI claims within the UK construction industry, both in terms of number and quantum. The ongoing implementation of new technologies making construction projects ever more complex, creating additional risks and consequently increasing claims settlements for insurers has been of particular concern.
• Contracts – The current economic uncertainty within the economy in general and the constructing industry specifically, has made securing contractual agreements quickly key to acquiring work, this often leads to rushed contracts, targeting pleasing the customer over limiting liability. This has left insurers concerned that there will be a spike in claims occurring from contract disagreements down the line, with insurers inevitably left to pay the bill.
• Supply chains – The resultant supply chain fallout following Carillion’s collapse caused financial issues across the entire sector. The perceived lack of resilience in the supply chain and increased exposure to vicarious liability claims coupled with a fear of a general sector downturn has made insurers increasingly cautious around cover for construction firms.
• Fire safety – Awareness of fire safety and concerns over cladding solutions has been heightened by the Grenfell tragedy. Unsurprisingly, insurers have become concerned over their exposure to high value cladding related claims, especially in light of the Government’s updated cladding regulations earlier this year.
What does this mean?
The spike in Professional Indemnity claims has led many insurers to pull out of the market entirely and those that remain have limited their appetite by implementing measures, including:
• Higher premiums – To correct their unprofitable books insurers have increased minimum premiums and premiums in general to help fund their underperforming accounts.
• Restrictions – Insurers continue to apply, at times onerous restrictions upon policies, including policy exclusions for Cladding systems, removing policy extensions, limiting cover and increasing self-insured excesses.
• Information requirements – The days of simple one-page renewal declarations are coming to an end with insurers asking for more detailed information, increasing the time it takes to obtain appropriate terms.
How To Find The Correct Cover?
With the following guidance, you can help yourselves secure appropriate cover:
• Risk Management –Stand out from the rest of the herd, counter insurers natural concerns of the industry by not only having but demonstrating that you have a solid risk management culture and strong financials. Provide insurers with proof and documentation of risk mitigation, internal practises, cashflow and profit margins.
• Detailed contracts – Creating clear, robust contracts outlining both parties’ responsibilities will help reduce the risk of contract disagreements, but again you need to demonstrate this to insurers.
• Broker’s advice – Consult your broker to find the correct level of cover and unique insurance needs and make sure that they are painting the best picture they can for insurers.
For additional guidance and insurance solutions to combat the hardening construction PI market, contact Bullerwell & Co Ltd today.