Since the early 2000s, Professional Indemnity (PI) insurance brokers in the construction market have been able to convey to clients the buying power they held in a soft market. * This was due to the competition and capacity that existed within the marketplace.
Be it an architect, engineer, or design and construct company the options were wide ranging. Insurers were able to provide indemnity limits in the millions. And do so with aggressively priced premiums and enhanced policy covers.
Barring a large increase in rateable fees, a poor claims experience or other significant change to the make-up of a client’s risk profile you would ordinarily be looking at expiring renewal terms, i.e. the same as was paid in the preceding year of insurance, at worst.
It would not be unusual to have a range of options for a client. In most instances the incumbent insurer would not want to lose the account and would always try and get the last approach to keep hold of the risk.
Bluefin Professions is not suggesting that insurance brokers had it easy during these years. However the common discussions held seem a lifetime away from the landscape now.
Fast forward to the last 12 months. The PI market is now the hardest** it has been for many years. Several insurers have pulled out entirely. Lloyd’s market has told some of its syndicates that they need to be more profitable and some of their statements have highlighted that Professional Indemnity insurance is one of the worst performing classes of business.
Today our experience is that the majority of insurers left in the market are looking for rate increases. Some significantly, in an attempt to rectify their book before their lords and masters tell them to call it a day. Coupled with these increases is reduced capacity on risks and policy wordings that are not as extensive. A good example of this is in the design and construct market where “civil liability” cover is being reigned back to a “negligence” only basis of cover by some insurers.
We feel that the Grenfell Fire in June 2017 simply acted as the catalyst to what was an already changing landscape. Somewhat like Brexit the word “cladding” has become an everyday discussion around the PI construction market.
It could be argued that insurers are using the Grenfell Fire as an opportunity to redress the soft market*. The days of multiple insurer options for clients has gone with fewer markets existing to write the business. Today, insurers, as a general rule, do not put up large primary limits of cover and many express a preference to co-insure their primary limit with other insurers to limit their exposures. The availability of “any one claim” cover is being replaced with “aggregated” cover limits for many contracting risks with a cladding involvement. And excess layer covers can be difficult to secure. Previously quoted phrases from insurers that we experienced such as “what do we have to do to secure the business?” are now replaced with “take it or leave it”.
We believe that the quality of the broking submission is key for clients. From our experience the days of simply providing modest underwriting information to insurers, by way off a renewal declaration with limited information, who would in turn return with attractive terms and enhanced cover are now few and far between. Today, insurers will expect no less than a complete broking presentation to include;
- Fully completed renewal proposal form.
- Detailed risk management procedures.
- Detailed claims information (with lessons learnt from any previously losses).
- Additional company information to help differentiate and prove worthy of insurers consideration and support.
To compound the above, we turn back to the issues surrounding cladding touched on earlier. Before the Grenfell Fire of June 2017, specific questions around cladding within PI proposal forms were negligible even for firms that specialised in these fields. Today, questions around cladding are often statutory in addition to the questions posed by insurers in their annual renewal proposal forms.
Unfortunately, many insurers have their own question set for cladding. Without responses to their cladding questions insurers are unlikely to provide terms even for those practices that have no or limited involvement with cladding in any shape or form.
The term cladding is also extensive and typically insurers will ask an initial question along the lines of:
“Have you been involved in any projects where any type of cladding or composite panels/cladding systems/rain-screen systems have been used?”
If Yes, then it would not be uncommon to then be faced with a question like:
“Were you or will you be contractually required to advise on or be responsible for any of the following on these contracts:
The design, specification, value engineering, selection, recommendation, installation, project management, project co-ordination, supervision, inspection, approval, testing, certifying of any of the cladding or composite panels/cladding systems/rain-screen systems materials or work undertaken”
This imposes quite an obligation on many construction professionals i.e. architects, engineers and contracting firms who are likely to have an involvement in some shape or form with the cladding on buildings.
Many insurers request the information going back 10 years. Some dilute the request by only asking for projects in excess of 6 storeys/18 metres but many do not!
Of particular interest for insurers are contracts included in the fields of:
- Social housing.
- Local or central government.
- Multiple occupancy residential.
- Hospitals, schools, residential care homes, universities, student accommodation, hotels, hostels, stadia.
- Mixed-use developments.
Insurers all also typically ask questions such as
- Did the project/ contract include the use of composite panels?
- If yes, did they include the use of ACM (Aluminium Composite Materials) which have a polyethylene core (PE)?
- Has the Insured ever recommended, approved or specified the use of non-fire retardant cladding?
- Did you subcontract any element of the contract to third party companies?
- If yes, did you ensure back-to-back contract terms and that they had their own PI insurance?
Due to the inevitable questions being imposed by insurers renewal discussions with clients and the insurers themselves should start well in advance of renewal to allow sufficient time to collate the required cladding information.
Regularly, irrespective of the extent of the clients’ involvement with cladding an insurer will apply their standard cladding endorsement.
Many insurers have a blanket cladding exclusion along the lines of:
“We will not provide any indemnity for any claims or circumstances for any loss damage or liability including costs directly or indirectly arising in relation to the combustibility or fire performance of composite, insulated or aesthetic purposes being used for insulation or the external cladding of a building.”
- Provide cover for cladding on an aggregate cover basis and usually with a higher policy excess than standard.
- Exclude any consequential losses arising from a cladding loss.
- Exclude claims on buildings over 18 metres.
- Only provide cover if the cladding meets certain building regulations or fire safety regulations.
And some a combination of the above.
Experience to date has shown that if a client has a particular exposure to cladding or has had a cladding claim/circumstance then the best result can usually be achieved from the holding insurer. There is currently very limited appetite in the market to write risks with a perceived cladding exposure. Unfortunately, this is not always the case, if the insurer has either pulled out of the sector entirely, is declining to renew the particular risk or is imposing a particularly onerous cladding exclusion. It is not unusual from our experiences of late to have multiple insurers decline a risk which specialise in this arena and/or have had a claims experience from same. Sometimes it is a case of trying to get what is the best from a bad bunch.
Although some insurers may argue that they are still providing cover for issues surrounding cladding that are not related to the combustibility of fire performance it is these areas that currently attract the most attention as a result of the Grenfell fire.
The position with the hard market and in particular cladding is not something in our view that we see improving in the short term. Notwithstanding the new cladding regulations being imposed or adopted throughout the UK post Grenfell, insurance companies are still concerned with their potential exposures.
As the balance of power has shifted to the insurers now more than ever, the role of a specialist PI broker in the construction market is vital by having the knowledge to be able to work with their clients and with insurers to address the issues at hand and achieve the best solution.
If you would like any further information regarding the above or have any specific questions concerning your own practice, please feel free to get in touch.
Robert Morris ACII is an Account Director at Bluefin Professions specialising in the placement and servicing of construction and property Professional Indemnity risks.
Email – email@example.com
Phone – 0131 255 0338
*soft market is categorised by vast insurance company capacity being available with resultant aggressive pricing of risks being available alongside enhanced policy coverages.
**hard market is categorised by limited insurance company capacity being available producing increasing premium rates and coverage restrictions.