Building on progress made in 2023, the market for professional indemnity insurance (PII) in the UK and Ireland generally strengthened over the past year. Market restrictions continued to ease, and insurers' appetite to write PII for surveyors has been increasing.
Lloyd's of London's reporting for January to June 2024 showed increases in underwriting profits and in gross written premiums.
At a very general level, this has improved capacity in the market, meaning greater competition between providers and therefore improved coverage and prices for those seeking insurance.
This is reflected in the pool of RICS-listed insurers, with several new insurers joining the list in 2024 and none departing.
It is also reflected in anecdotal feedback to RICS, with regulated firms reporting that they have generally been more able to secure fire safety cover when needed and seen a small overall reduction in average premiums.
RICS consults on proposed revised requirements
RICS' PII requirements were adjusted in response to market changes post-Grenfell. Since then market conditions have been carefully observed, waiting for the appropriate opportunity to once again strengthen RICS' PII requirements and support regulated firms to obtain more extensive cover.
Aware of the improving strength of the market, in late 2023 RICS conducted a consultation on proposals to change the PII requirements and minimum policy wording in the UK and Ireland.
The proposals concerned three key areas:
- fire safety coverage for buildings above four storeys
- external wall surveys and fire risk appraisals of external walls (FRAEWs)
- cyber exclusion clauses, which remove PII cover for claims arising as a result of defined cyber events, such as cyber attacks.
The responses to the consultation, and more detailed discussions with RICS-listed insurers, were generally very positive and broadly supported the proposals. Further details are available in the consultation document itself.
Having considered the responses to consultation and held detailed conversations with RICS listed insurers, RICS' Standards and Regulation Board approved changes to the organisation's PII requirements and minimum policy wording that took effect in July 2024.
Fire safety cover now needed for taller buildings
Fire safety cover requirements for work to buildings of four storeys or lower in the UK and Ireland remain unchanged, as was proposed, meaning that firms need PII cover in place for such work, including for fire safety claims.
This cover must be on a full civil liability basis covering any civil claim made – including any claim in contract or tort – unless it is explicitly excluded in the specific policy.
It can be in the aggregate – meaning that the total limit of indemnity is the total amount payable across a claim or series of claims – with defence costs included in the limit of indemnity and the uninsured excess applicable to such costs.
What is new is that RICS has re-introduced a requirement for fire safety-related cover for work involving buildings of five storeys or more – a step towards the level of requirements which were in force before the market turbulence following the tragedy of Grenfell Tower.
This cover can be on a negligence-only basis; it can be in the aggregate, with defence costs again included in the limit of indemnity, and uninsured excess applicable to these costs.
Significantly, the earliest retroactive date for such cover is 1 July 2024 or afterwards, meaning that insurers are not obliged to provide cover for fire safety-related claims arising from work undertaken on buildings of five or more storeys before that date.
These requirements were the result of a pragmatic and collaborative approach to acknowledge insurers' nervousness at taking on unknown historic risk, while also recognising that the situation has changed as a result of measures such as the Building Safety Act 2022.
Future risk is more clearly defined and understood, and there is also improved assurance of competence and responsibilities across the built environment.
'Future risk is more clearly defined and understood, and there is improved assurance of competence and responsibilities'
Criteria eased for external wall assessments
RICS-listed insurers agree to write cover for regulated firms in line with the minimum policy wording, which was amended to require cover for external wall systems assessments and FRAEWs in the UK – only where the work has been completed or signed off by an individual who has completed and passed the RICS external wall systems assessment training programme – and where the work relates to a building up to 18m in height.
Although insurers may choose to offer cover more broadly than this – for example, to firms which have historically carried out this work but do not employ individuals who have completed the RICS training – RICS is not currently making such cover part of the minimum policy wording to be used by listed insurers.
Cover for external wall systems and FRAEW work can also be on a negligence-only basis, in the aggregate, with defence costs included in the limit of indemnity and uninsured excess applicable to these; it can also include a retroactive date of 1 July 2024 or afterwards, as above.
This represents significant progress, with external wall systems having been completely excluded from cover under the minimum policy wording from April 2021 – following significant market disruption post-Grenfell – until June 2024, when RICS launched its updated Standards and Regulation Board-approved requirements following public consultation and liaison with the insurance market.
Through 2023 and 2024, the availability of external wall systems system cover improved from a position of partial market failure, as only larger surveying firms were generally able to demonstrate enough experience to reassure insurers and secure sufficient cover, to greater availability, including for SMEs.
RICS' changes to the minimum requirements aim to build on this by influencing and improving cover available in the market, seeking to ensure that – as a minimum – listed insurers are providing external wall systems and FRAEW cover to regulated firms who employ people who have undertaken RICS' training in this area.
As reassurance and assurance in respect of competence and risk improves, it is anticipated that insurers will continue to offer cover more widely.
Cyber clause removed but risk remains
In response to the increased use of cyber exclusions in the PII market, RICS introduced a cyber exclusion clause in its minimum policy wording in April 2021. The aim of this clause was to standardise the wording of cyber exclusion clauses in so far as they were used in PI policies for regulated firms.
This clause has now been removed, improving the position for RICS-regulated firms because cyber cover is not excluded as a matter of course.
Nevertheless, RICS-listed insurers may still look to exclude such cover by using the International Underwriting Association (IUA) standard endorsement 04 017 Professional indemnity cyber and data protection law endorsement.
Regulated firms should be alert to this possibility and assess what cover they reasonably require for such risks.
Sharing information will help shape market
RICS continues to liaise with listed insurers and experienced brokers to understand the PII market in the UK and Ireland, with a view to potentially further strengthening requirements and minimum policy wording.
Additional education and support, particularly for regulated firms, is also a high priority. RICS already provides guidance on risk, liability and insurance, but thought is being given to what additional support and guidance can usefully be provided to regulated firms to help them better understand the PII market so they can secure adequate and appropriate cover.
To inform RICS' interactions with insurers, brokers and government, RICS is highly reliant on information being shared by regulated firms.
The year ahead is likely to see some changes to the data and information gathered from firms through the annual return, all of which will help to build a stronger evidence base for decision-making, supporting regulated firms, and lobbying for change where required.