Chuttersnap via Unsplash
Many surveyors have been left uninsured over the past 18 months when it comes to their fire safety services. This was a result of changes made to professional indemnity insurance (PII) requirements in 2019 following the Grenfell Tower fire, and the resulting glut of claims that insurers faced about defective cladding and fire-stopping on hundreds of high-rise blocks.
In addition, 2019 saw RICS introduce the EWS1 form, to help assess the safety of external wall systems on high-rise residential buildings, and whether remedial works were needed on cladding or insulation – the cost of which might affect value.
However, as we reported previously, many insurers were forced to cut back on the amount of PII they provided, and were excluding cover for surveyors producing EWS1 assessments unless they had made prior written agreements to undertake that work. Yet, while it is not a legal requirement, many lenders have required EWS1 forms before making decisions on new loans and remortgages.
On top of these issues, the pandemic has exacerbated risks surrounding cyber security, not least because insurers and property professionals have alike been forced to work from home and use networks that may not be sufficiently secure. As a result, firms have increasingly had to deal with ransomware and cyber attacks.
RICS has been working with listed insurers to try to unlock the market and ensure that professionals are able to obtain adequate cover to fulfil their obligations. As a result, a number of changes to minimum terms have been agreed, which came into effect on 1 May. These changes address several different issues.
RICS recognised that further amendments to minimum terms were necessary to allow surveyors to protect themselves and their clients when undertaking fire safety work. But it also understood that any changes had to be balanced against the concerns of the insurance market, given the significance of fire safety for the entire construction and housing industry.
As a result, the minimum terms now state that, absent dispensation, any exclusion in a PII policy 'will not apply to professional work relating to buildings four storeys or under' – the threshold set out in the RICS guidance note Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding, published in March, that a property will only require an EWS1 where there are ACM, MCM or HPL panels on the building. This means that where a practice cannot get insurance which provides this level of cover, it must therefore seek permission from the RICS to obtain insurance that does not comply with the requirement of the minimum terms. Fire safety coverage must also be provided as a minimum on the basis that includes defence costs, which means that the limit of indemnity can be eroded by defence costs, as well as the payment of a claim. Only once the excess has been fully eroded by the payment of defence costs will insurers then cover the balance of these costs.
While properties under four storeys present a lower risk and usually involve claims of a lesser value, this is nonetheless a positive step towards reintroducing fire safety cover in the market. Although it will still be possible for a PII policy specifically to exclude some fire safety work, it will mean that professionals can work on properties under four storeys and advise on buildings such as schools when previously they may not have been able to obtain cover for doing so.
These new terms will no doubt be welcome for surveyors. The changes reflect the advice set out in Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding, which also includes advice on when the EWS1 form should be used. It should be noted that this reinstatement of cover compared to the previous minimum terms does not affect the ability of insurers to require their advance approval for anyone completing an EWS1 assessment.
Given this change to the availability of cover, it is ever more important to provide insurers with full details of the risk management procedures in place and the work carried out in order to reduce the risk of claims arising from this activity.
'Amendments to minimum terms were necessary so surveyors could protect themselves when undertaking fire safety work, but any changes had to be balanced against the concerns of the insurance market'
As explained in the previous article, it is imperative for all surveyors and valuers to include liability terms in engagement letters, terms and conditions and valuation reports, where they are relying on EWS1 forms prepared by third parties. The terms need to set out clearly that they will not be liable either to the client or to any third party where any error in their advice is caused by their reliance on an EWS1 form that turns out to be wrong.
Although the government's commitment to developing an insurance scheme for professionals completing EWS1 forms is welcome, it will need to be affordable for professionals and allow exclusion-free cover for valuers who have relied on these forms.
The Prudential Regulation Authority (PRA) has recognised cyber cover as an area that has not been adequately set out in some PII policies, resulting in firms not having adequate protection or, for example, taking out a separate policy when it wasn't needed.
RICS has likewise acknowledged this, and the changes to the minimum terms now reflect the PRA requirements in clarifying the cyber cover that a PII policy includes. This in turn will help firms and their brokers ensure that adequate cover is in place for all firms' risks.
The minimum terms now exclude claims relating to the use of, or inability to use, a computer system arising from the receipt or transmission of malware, or from so-called 'cyber acts' including damage to or destruction of programs, software or stored data. Professionals should study the relevant section of the minimum terms carefully with their brokers to be clear about the specific restrictions that apply to their policy.
RICS is in the process of developing responsible business guidance on cyber risks and cyber security. In the meantime, it has published general guidance on these issues to help firms manage cyber-related risks.
Although it is not stated in the minimum terms, one important point to mention is that it is imperative that regulated firms obtain their PII from a listed insurer. RICS does not accept dispensation requests from members who are seeking to obtain insurance from unrated insurers which means their insurance must meet the full requirements of the minimum terms if they wish to have cover with such an insurer.
One of the key priorities for RICS is supporting firms and managing risks. The organisation has been working closely with insurers, firms and legal advisers to ensure the best and most appropriate cover is available to firms and to help them reduce risk wherever possible.
Obtaining appropriate and adequate cover is a critical obligation for all professionals; they should always discuss their requirements with their broker to ensure they are covered.
Related competencies include: Insurance