Construction market premiums have been steadily decreasing since 2001, except for practitioners with survey and valuation exposure, resulting in a sustained soft market.
Since the Grenfell Tower fire in June 2017, however, this class of business has come under intense scrutiny from almost all insurers in the sector. Analysis from Lloyd's and composite insurers has confirmed that premiums are now too cheap given the level of claims activity and the coverage on offer – which has recently been broader than ever before.
This should come as no surprise, and the majority of insurers are taking corrective action. In some respects such action is quite extreme, with a number of insurers withdrawing from underwriting professional indemnity insurance (PII) entirely, or completely changing their criteria for doing so.
In turn, this has caused rates across the market to increase, with associated reductions in cover or increased excesses. Although these rating corrections started in the design and construction sector, we are now seeing them filter through into related classes, including surveyors.
The surveyors' insurance market has had problems of its own in the past, with the number of survey and valuation claims exploding in 2008 after the financial crisis for instance. However, since the Hackitt review began, new areas of concern are arising where PII claims are concerned.
The two largest areas affected are project management and property management, the latter having always previously been deemed low-risk. Project managers are in fact more vulnerable than ever before because of the multiple exposures they face up and down the contractual chain, and the possibility that their insurers may not be able to subrogate against smaller subcontractors if they go into liquidation.
As a result, PII providers have had no alternative but to hike rates in this area. Bear in mind that project management is not to be confused with project coordination, which, although it has its own exposures, does not carry such a responsibility, and therefore does not necessitate so high an underwriting rate.
Property managers meanwhile have not historically been on the claims radar. However, with the glut of fire investigations that have been carried out since the Grenfell Tower fire, teams are discovering multiple concerns on sites that would normally have gone unnoticed by third parties.
The most significant areas of concern and claims activity have been social housing, schools and universities and, unsurprisingly, high-rise buildings. This has had a ripple effect among all property managers, with insurers again restricting cover, increasing rates or withdrawing entirely from servicing this class. Furthermore, the aluminium composite material cladding and fire safety exclusions that are now being applied to future policies make for an uncertain PII landscape.
"The two largest areas affected are project management and property management"
While all this could be seen as a bad news story, it could also be looked at favourably. With the restrictions in wordings and policy conditions, firms should see this as a good opportunity to strengthen internal risk management procedures.
The RICS PII minimum terms and conditions are generous. However, areas where claims were historically infrequent and less severe are now seeing these increase considerably in number and significance, so it would be prudent for firms to discuss procedures both internally and with their insurance brokers to ensure that any potential risks are mitigated. This approach would ultimately make firms less of a risk in the eyes of insurers, keeping premiums and coverages as competitive as the market allows.
It is always helpful for firms to discuss any potential changes to the market or cover with their brokers, who can assist and advise about conditions that are constantly evolving.
Stewart Ruffles is director of professional risks at Clear Insurance Management firstname.lastname@example.org
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