The insurance market is currently in the middle of a perfect storm: continued economic uncertainty following Brexit and COVID-19, insurers' concern about fire safety exposure after Grenfell Tower, and a major internal review by Lloyd's of London.
While this is affecting all professional services firms, including lawyers and accountants, it is having a disproportionate impact on surveyors and those providing fire safety advice. Historically, RICS-regulated firms could readily obtain cover for such work; but with a restricted supply of insurance, increasing premiums and growing concerns around cladding, availability became increasingly constrained throughout 2019.
As the market became increasingly tough, RICS received an increased number of dispensation requests from members unable to obtain compliant cover for fire safety issues. While these started out in relation to work being carried out on aluminium composite material cladding they began to get much broader, and blanket fire safety exclusions from insurers affecting all professional business became increasingly common across the market.
During 2019 it became clear that fire safety coverage was not available in the professional indemnity insurance market. In addition, with the unknown outcomes of the COVID-19 lockdown, insurers were permitted to apply blanket fire safety exclusions.
This had a significant impact on the market as it meant that many firms were unable to obtain fire safety cover, leaving them exposed on previously completed instructions and not protected for future work. That affected the whole surveying market, potentially leaving all professionals exposed to fire safety claims rather than just those specialising in the field.
Throughout 2020 and into early 2021, RICS worked with the insurance market to restrict blanket fire safety exclusions and restore access to some cover, particularly on building of four storeys or less.
RICS then agreed with insurers in May 2021 that, while fire safety exclusions could be used, these would not apply to work on properties with four or fewer storeys above ground level, including the ground floor but not basements or mezzanine levels. That stipulation covers all properties, whether they are used for residential, commercial, parking or any other purposes.
This write-back has not been included in the minimum policy wording, but is contained in the agreement that all insurers sign if they want to participate in the RICS insurance market. The aim of this write-back was to restore access to cover for those areas of professional surveying that had not previously caused concern, and which are deemed less risky.
Under RICS' 2021 policy wording, completion of EWS1 forms by surveyors – which confirm that they have assessed the suitability and safety of external wall systems – can still be excluded from cover by insurers. This was included following discussion with insurers who considered such activity to be material to their underwriting and encouraged specific agreement to be sought. Further, the ongoing commitment from the government to back a PII scheme for competent professionals, would effectively take over from private insurers in underwriting such risks. The scheme is still being developed and is expected to launch next year.
Earlier this year, RICS launched the External Wall Systems Assessment Training Programme with government support, aiming to increase the number of professionals who are competent to complete such assessments, sign EWS1 forms and conduct mandatory fire safety checks under the Fire Safety Act 2021. Professionals who have successfully completed the programme will be eligible for the government PII scheme once it is launched, ensuring that they will be covered to complete EWS1 forms.
Although cover for completion of EWS1 forms is excluded from RICS' policy wording, limited protection for professionals completing EWS1 assessments has been available on a case-by-case basis at insurers' commercial discretion, so long as firms have been able to demonstrate competence and robust risk management procedures.
RICS has operated an Assigned Risks Pool (ARP) for many years, collectively underwritten by all insurers listed by the organisation to ensure the continued availability of PII. The pool is open to all firms that have been regulated by RICS for a minimum of 12 months that are otherwise unable to obtain PII that meets the organisation's minimum requirements.
The ARP can provide terms to meet RICS' minimum policy requirements up to an indemnity limit of £1m. The pool has played an important role while the market has been tough, and allowed a number of firms to continue to trade.
In April, ARP entry requirements were amended to reflect reduced availability of insurance. The main changes eased the administrative burden so applications could be processed more quickly, allowing firms to approach the pool when they have been denied cover by a listed insurer or are concerned that they could not arrange any, as well as implementing a risk-based approach to business reviews rather than making them a mandatory requirement.
There is no doubt that the insurance market continues to be particularly tough, with high premiums, higher self-insured excesses and reduced insurer appetite and capacity to underwrite firms.
The changes introduced by RICS earlier this year have gone some way to reintroducing fire safety cover, albeit in a limited way, and listed insurers' restoring such cover is welcome. But open-market availability of cover for firms undertaking work on buildings of more than four storeys remains difficult to obtain, particularly for SMEs.
Firms undertaking work deemed higher-risk by insurers and looking to obtain cover at renewal should demonstrate competence, put in place strong risk-management procedures, and use terms and conditions such as liability caps to manage risk.
In a recent article, RICS global building standards director Gary Strong highlighted that considerable uncertainty remains about the future regulatory environment, as the Building Safety Bill continues its passage through Parliament. Full implementation and efficient operation of the new regulatory framework it will introduce is thus still years away.
In the meantime, insurers remain concerned about the uncertainty of the current framework. Any future changes are unlikely to resolve issues around work that has already taken place, and insurance providers are concerned about significant claims exposure in this area – particularly in relation to cladding.
We have already seen that the UK government is committed to underwrite competent professionals who complete EWS1 forms; if market conditions keep worsening and firms continue to have difficulty obtaining cover, we may witness further government interventions in the market to support or underwrite specific areas of risk, such as the completion of fire risk assessments.
In response to these ongoing difficulties, RICS' independent Standards and Regulation Board (SRB) committed to a wholesale review of its PII requirements. The requirements have not been significantly altered since their introduction in the late 1990s, so the review aims to establish a sustainable, stable and affordable PII market for surveyors in the UK.
The review is ongoing, with the SRB expected to make recommendations on proposals to amend the RICS' PII requirements. A consultation in the coming months will offer an opportunity for RICS members and firms to engage with the proposals under consideration.
RICS will continue to keep members updated about developments in the PII market and the availability of fire safety cover, as well as on progress of the PII review. In the meantime, surveyors are advised to consult the current edition of Risk, liability and insurance RICS guidance note, for more information.
Hugh Garnett is RICS' senior policy specialist
Contact Hugh: Email
Related competencies include: Fire safety, Insurance, Risk management