For the past decade, most RICS-regulated firms have enjoyed access to competitively priced professional indemnity insurance (PII). Even so, PII may account for well in excess of five per cent of fee income and can be the second biggest expense after payroll – sometimes more for those firms that are unable to provide evidence of prudent risk management.
PII is commonly seen as a necessary evil and is often only considered a few weeks before renewal, at which point the objective is to renew as quickly and as cheaply as possible. This approach is unlikely to result in an insurance product that, when tested by a claim, performs as it should do.
This article aims to outline the more common causes of claims, along with some considerations for risk management, to enable better-informed decisions.
Failure to create and maintain adequate records and site notes can be a major problem when it comes to the defence of a claim of negligence. A professional does not have to be negligent for a claim to arise; however, when a claim does arise, the professional needs to be able to give evidence of the way they come to their findings. Otherwise, insurers have little to no chance of making a successful defence.
It has long been said that merely doing a good job is not enough: we must be able to evidence that any survey carried out was done so with the common law duty of reasonable skill and care. The site notes should provide the muscle for the defence of any claim.
Lack of expertise is one of the most common causes of professional indemnity claims. Competitive spirit can often cloud an honest evaluation of why you have been selected to bid for a certain type of work, and may prevent a reasoned bid or no-bid process being undertaken. As a result, you may win work that does not fit your strategy or skills for a variety of reasons.
As a minimum, firms should have a basic process in place to establish whether it is worth competing for a given tender. This process must be followed whether you are taking on a new contract in an area where you have long-standing expertise, or diversifying into a new line of work or geographic region. Irrespective of experience and capability, an overstretched team is far more likely to make a mistake than one with a manageable workload.
Given the shortage of surveyors across most disciplines, consider long-term resource levels and how they will affect your ability to work continuously to a service-level agreement. You might be able to service the contract now, but will that still be the case in a year's time? If not, how do you intend to fill the resource gap, and can you afford to do so?
A vital question to ask is: do you understand what the client wants, and does the client understand what you are providing? Most clients are unlikely to have an in-depth understanding of technical terminology in your specialist field, and so it is important to manage all clients' expectations from the outset.
We have all felt pressure to agree to tight timelines, but we must avoid making promises we cannot fulfil in order to win business. If demands are unreasonable, explain your concerns in writing and keep records of all communications. Any uncertainty surrounding the service you are providing must be resolved before you start work, otherwise a chain reaction of complications often follows.
The euphoria of winning a new instruction can cloud your judgement about what represents a good opportunity. Before starting work, try to understand why your firm has been selected. You may think it is all about the quality of your business, but an honest appraisal might show that the reason you have been selected is because yours was the cheapest tender, or yours is the only firm willing to agree to the contractual terms. Equipped with this insight, you can make an informed decision about whether you are willing to bear the risk, and what steps you can take to mitigate it.
Effective risk management involves a professional taking control of the extent of their liability, the nature of their liability and the parties to whom liabilities are owed.
Our advice is to stay in contact with your insurance broker so that you remain up to date with any foreseeable changes in both the insurance market and your own. This should help you to budget for any probable rise in premium and to prepare for the renewal process.
Remain informed about risk: speak to your colleagues, your competitors and your clients and be aware of the events that typically lead to an increase in claims. If you stay informed, you should be able to respond to changes in risk by adapting your processes or by applying caution when taking on new work.
Ensure that the person responsible for buying PII understands the business, understands PII and appreciates how to manage claims efficiently. Use brokers with a demonstrable understanding of the surveying sector. Ask about other firms they act for, and evaluate the quality and frequency of the risk management guidance they publish. How involved and present are they in your sector?
Working with a specialist broker will help achieve a better deal at renewal and perhaps, more importantly, will ensure that you get all the guidance and advocacy required in the event of a claim.
While price is important, the most important rule is to ensure that you are fully aware of what you are buying.
Greg Harrison is a senior account executive in professional indemnity at Howden email@example.com
Related competencies include: Ethics, Rules of Conduct and professionalism