After a golden age of market conditions offering affordable coverage, the professional indemnity insurance sector has hit a crisis. The CLC is working to change things.
In 2019, notes insurance broker and risk advisory body Marsh, Lloyd’s ordered syndicates to limit the amount of new professional indemnity (PI) insurance they could write, owing to its poor performance. It is a move that echoed the Prudential Regulation Authority’s concerns over solvency within general insurance companies. Across the board, cheaper rates have been withdrawn, premiums and excess layer premiums have increased, the average capacity per underwriter has dropped from £5m to £2.5m (just in the past 18 months), while some insurance syndicates have withdrawn from the construction PI market altogether.
Contractors have suffered an increased cost for placements and renewals, as well as restrictions in cover bringing a knock-on effect on property owners and developers as contractors seek to limit their liability under contract. Marsh notes: “At least eight insurers no longer support UK construction PI risks. Underwriting is selective and generally based upon past claims history, regardless of an insured’s future risk profile… Policy coverage restrictions with a major focus on cladding and fire safety claims are increasingly common… Insurers are restricting cover in relation to cladding, introducing higher excesses, cladding conditions and inner limits for specific risks. For new business enquiries where insurers have no historical relationship with an insured, cladding exclusions are more prevalent.”
Of course, it isn’t just cladding specialisms that are affecting the PI market. Some firms have reported fourfold increases in policy costs, while others have said that they can no longer secure cover. From February to March this year, the Construction Leadership Council (CLC) ran an online survey to assess the problem. Companies were asked, via an online survey or by providing confidential feedback, about the costs and policy exclusions they have experienced when renewing their cover. The results were shocking but not unexpected:
- more than 60% of total survey respondents have some form of restriction on cover relating to cladding or fire safety
- one in three survey respondents have a total exclusion in place for cladding claims
- one in five respondents have a total exclusion in place for fire claims
- more than a quarter of total survey respondents have lost jobs as a result of inadequate PI insurance
- one in three respondents couldn’t do remedial work if they wanted to
- almost a quarter of total survey respondents have changed the nature of their work because of inadequate PI insurance
- most respondents buy £10m of cover or less, with very few buying over £20m
- almost half of respondents had been declined insurance by three or more insurers
- two thirds of respondents are carrying a claim excess imposed upon them by their insurers
- premiums have increased nearly fourfold at the last renewal, having doubled the year before; the average rate is 4% of turnover, but one in five respondents who gave figures are paying more than 5% of their turnover for PI insurance.
Armed with this evidence, the CLC will work closely with government and industry to identify solutions. As CLC Chair Andy Mitchell notes: “We have seen in the past year that our industry can deliver real and positive change when we work together to tackle shared challenges.”
Read the full survey results at bit.ly/CLCPISurvey
Read the full Marsh article at bit.ly/MarshPIUpdate