After nearly five years of turbulence in the professional indemnity insurance (PII) market, it is an opportune moment to reflect on where we are now.
Over the past 12 months, the market has been largely steady, with a shift towards greater capacity and willingness to write cover for surveyors.
Lloyd's of London has also approved growth plans for a number of syndicates in 2023 and further ones are now in process for 2024, which has enabled it to increase its capacity to offer cover by 20%.
This has led to more competition between insurers, resulting in a willingness to write risk profiles that they would not previously have done.
This year, two new insurers have also applied to become listed by RICS, in order to be able to offer cover to RICS-regulated firms. No insurers have left the RICS list, and there have been additional enquiries from others looking to join.
Applications to RICS' Assigned Risks Pool have also been steady – which is an encouraging sign that the market is in a steady place, despite continued caution from underwriters.
Government interventions proving ineffective
The UK government understands the importance of firms being able to obtain adequate PII and the role such cover plays in the success of various government initiatives, such as its recently launched Cladding Safety Scheme.
The government also intervened in the market in the form of the EWS1 PII scheme, which was open to individuals who had successfully completed RICS' external wall assessment training programme.
However, uptake of the EWS1 PII scheme has been very low, primarily due to the cost and the narrow scope of coverage provided, which was limited to completing EWS1 forms and would not extend to cover a surveyor conducting a fire risk appraisal of an external wall.
The ability to secure cover for external wall assessments continues to be limited to firms that are larger and able to demonstrate significant experience in carrying out such work, which means that it is difficult for firms to move into this area of surveying practice.
RICS considers that this represents a partial market failure, and continues to press the point with the government.
RICS engages with insurers to support members
RICS also continues to engage with insurers to make sure that their concerns are fully understood, and to make positive amendments to the RICS minimum policy wording; this is the wording to which all listed insurers must adhere, to ensure the best possible coverage for RICS-regulated firms.
Furthermore, the institution is implementing the findings from the PII review, which commenced in mid-2021, paying renewed attention to education and support for firms, including a recent webinar on how to approach the annual PII renewal.
RICS has also launched a list of experienced brokers to help RICS-regulated firms find brokers with experience of supporting regulated firms in securing PI cover which meets the requirements set by RICS, and has added a construction-specific appendix to its Risk, liability and insurance practice information.
Fire safety and cyber security seen as higher risk
No two insurers have an identical appetite for risk, and some will be more inclined to write cover in areas that are considered to present a higher risk than others.
Valuation for secured lending has been seen as high risk since the 2008 financial crash, but there is particular scrutiny in this area at present because of high interest rates.
This sparks fears of an increase in overvaluation claims should the property market decline.
Bank and fund monitoring activities are also considered to be high risk, as high-value claims are frequently made in this area.
Insurers remain vigilant when it comes to fire safety, and many firms will find that there continue to be exclusions on their policy to limit insurers' exposure in this area. These exclusions will not usually be limited to claims related directly to cladding, so it's important that firms check their policies very closely.
Insurers are keenly interested in the new roles being created by the Building Safety Act 2022 as well, and any associated liabilities they may create.
There is a feeling among insurers at present that they cannot fully assess their exposure, particularly as secondary legislation is still being developed under the act.
More generally, project management is often seen to be high risk, particularly where firms are responsible for appointing and directly engaging contractors rather than just performing a coordinating role.
Cyber-related liability claims are also of concern to insurers. Following intervention by regulators who feared that the pricing of PII policies did not reflect risks associated with cyber exposure, it is now standard practice for firms to have a stand-alone cyber policy. Firms unsure whether they are sufficiently covered should consult their broker.
'Some insurers will be more inclined to write cover in areas considered to present a higher risk than others'
Legislation and economy complicate future picture
To a certain extent, it is difficult to predict what is going to happen next in the PII market. There remains much uncertainty around the economy in general and the impact of the Building Safety Act 2022 in particular, both of which insurers will continue to monitor closely.
For the time being, insurers are likely to maintain the approach they have taken over the past few years when the market has been difficult. This means they will continue to give increased scrutiny to underwriting, and apply exclusions to PII policies to limit their risk.
To support RICS-regulated firms, RICS is seeking to increase the amount of fire safety coverage written into its minimum policy wording ready for the next insurance year, which will run from 1 April 2024.
Consultation on this will launch shortly, and all RICS-regulated firms are encouraged to engage.