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Hard times ahead in a hard Professional Indemnity market

As many of our property and construction clients will be aware from press articles and communications with their professional bodies, the cheap PI rates experienced in the “soft” UK insurance market for over a decade have come to an end and professionals and contractors are now feeling the impact of increased PI premiums and in some cases more restrictive cover.

What has caused this? 

Lloyd’s of London conducted a review of its worst performing lines of business in 2018 with PI insurance being the second worst performing class (USA property business was the worst). In 2017 Lloyd’s Syndicates incurred £272m in claims but only collected £170m in premium for Architects, Engineers and construction risks; a situation which is unsustainable.

Several Lloyd’s Syndicates and specialist insurers have withdrawn from the PI market during 2018 and 2019 and no new entrants have taken their place, so there is reduced capacity.

The Grenfell Tower fire has led to concerns about the construction industry in general, both in terms of building regulations and fire safety, which has led to greater regulatory scrutiny. PI insurers have reported difficulties in being able to pass claims for construction projects down the line to designers and consultants. This has led to an increasing number of insurers scaling back on capacity or withdrawing from the PI insurance market entirely. Consequently we are now in a “hard” insurance market.

What effects are we seeing? 

  • Insurers increasing their rates with the result of significant increases in PI premium levels as the costs are being passed to businesses.
  • Insurers being more diligent and proactive with their risk assessment before quoting or offering renewal of PI cover.
  • Punitive terms are being imposed, such as reduced limits of indemnity, higher excesses, restrictions in cover or cover exclusions.
  • In some cases, insurers are declining to offer renewal terms in the event of significant risk exposure or where there are existing claims or notifications.
  • Slower response times from insurers as insurers are inundated because more firms are looking for alternative PI cover in the hope they can find more competitive renewal premiums.

Insurers may now be declining to quote risks or professions where they would have been eager to provide terms in previous years.  2019 renewal premiums in some cases may be up by 25% or more. This can be hard to understand, particularly for businesses which have not had any claims and where turnover has remained stable.  Many property related professionals (not just Architects and Design & Construct risks) may experience challenges in renewing their PI insurance at terms that they consider are suitable or affordable. 

Which professions is this affecting?

The following professions have so far experienced the greatest impact:

  • Architects
  • Design and Construct
  • Surveyors (particularly those involved in mortgage/lending valuations)
  • Building and Engineering Contractors
  • Property Managers
  • Commercial Investment Agents

However, it is anticipated that premium increases will filter through across all professions during the second half of 2019 and there is likely to be a continued impact on availability, cost and capacity over the next few years.

How will this impact and what can be done?

  • There may be delays in insurers response times and unexpected premium increases and/or restrictions in cover.
  • Don’t assume that renewal of your PI insurance will be a simple formality and that terms will remain similar to last year. The low premiums of recent years are a thing of the past.
  • Allow plenty of time before renewal to prepare. As a minimum submit your renewal presentation at least 3-4 weeks prior to your renewal date.
  • Provide a comprehensive insight and detailed information into the running of your business together with details of new projects, changes to activities and any variations to your directors and partners.
  • Keep the information clear, concise and consistent. Make your renewal presentation with care and demonstrate that you have a clear vision of the outlook for the future and where the firm is going.

For more information regarding your PI needs, please contact Verena Cole or Anna Lloyd at our Bristol office on 0117 387 8880/8881.

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