Professional indemnity insurance for construction professionals

A lot has happened in the first half of this year and it’s worthwhile reflecting on our experiences of the professional indemnity insurance market and what we can look to expect for the remainder of 2020.

2019 proved another turbulent year, which witnessed more professional indemnity insurers withdrawing completely from the market. This coupled with others continuing to pull in the reigns, whilst pushing rates and further restricting coverage as the year went on. There was no great raft of new insurers raising their heads above the parapet, which resulted in many renewals being challenging for both insurance brokers and their clients respectively.

Entering 2020 with a degree of realism that the market was unlikely to improve in any dramatic shape, but did have some hope that after renewing reinsurance provisions at the turn of the year, some insurers may again have capacity available to assist, at least in the short term. Unfortunately, we have not seen signs of this. If anything, the market continues to “harden”* as we progress through the year. Insurance companies and managing general agents (MGAs) are continuing to apply rate increases, some significant, for all professions be it an architect, engineer, surveyor or design and construct (D&C) contractor. Currently, there are specific sectors within these professions where you may face with a handful of primary markets at your disposal – such as a specialist-cladding contractor or a survey and valuation (S&V) surveyor.

Concern of the limited insurance markets available to S&V surveyors, the Royal Institution of Chartered Surveyors (RICS) produced a consultation paper that looked at ways in which they could generate more insurer interest. As a result, from 1 May 2020, the RICS PII minimum terms and conditions have been relaxed to allow:

  • “Unlimited around the clock reinstatement” of the indemnity limit being a permitted basis of cover, which previously stated as “each and every claim”.
  • “Costs inclusive” policy excess provision, whereby clients would now meet the defence costs incurred in defending a claim, which previously been met by the insurance company.
  • A relaxing of the fire safety and cladding restrictions permissible. Previously, the fire safety and cladding cover restriction permissible under the RICS minimum terms were an aggregate cover limit and cost inclusive excess for specific surveying activities. From 1 May 2020, although RICS still has a preferred wording in this area, any registered RICS insurer can look to impose their own fire safety and cladding restrictions, covered in more detail later in this article.

Time will tell if these amendments do generate more insurer interest in this sector to increase clients' choices, but with the potential trade-off, being cover that is more restrictive as a result.

The current volatility of the PII market has coincided with the increased number of risks that are being re-marketed to insurers as a result. This has caused resultant strain on them coping with the volumes and resultant service delivery issues. Insurers may have limited capacity, if any, to offer on a particular risk. This has led to several insurers now being required to complete a client’s PII programme, which previously would have been accommodated by maybe one or two.

The state of the PII market has unfortunately coincided with the COVID-19 outbreak, with many practices now facing a difficult remainder to 2020 and beyond. As professional indemnity policies are rated, in the main, on the previous year’s completed financials covering such work, there is unfortunately no instant savings going to be available for upcoming renewals in recognition of the expected reductions in turnover or professional fees. Already, we are beginning to see more questioning around COVID-19 being asked by insurers and exclusion clauses appearing. As with any catastrophic global event, it is unlikely that any class of insurance, including PII, will not feel the impact of the pandemic.

*“Hardening” market means increasing rates and more restrictive terms being offered by insurance companies and MGAs.