Professional Indemnity (PI) Q&A with Neon Mavromatis, Managing Director, Construction, Kerry London

Q: The PI market has gone through a difficult couple of years with premium increases, is this situation continuing, or have things improved?

A: So far this year, we are starting to see professional indemnity (PI) premiums levelling out.
While rates are not going down, we are not seeing the significant spike in rates that we saw a couple of years ago.

Inevitably some of the larger construction firms might still find PI premiums are a significant percentage of their turnover, and some opt to take higher excesses to reduce this cost. Of course, if there’s a claim this will still affect the bottom line

Q: Has the availability of PI cover improved?

A: Overall, I would say yes. Several years ago, several insurers exited the PI market, reducing the availability of cover and increasing premiums. The insurers that remained were focused on their existing book of business, and their appetite for new business reduced. This situation has changed, and some insurers are now more open to discussing new business again, although certain sectors still can’t get cover. General fire safety exclusions including cladding remain, although one or two insurers are starting to engage. Some insurers prefer to offer excess layers of cover as opposed to primary cover. Aggregate limits are now widely used or with Round The Clock reinstatements rather than any one claim cover.

With the introduction of extended claims liability under The Building Safety Act coming into force at the end of June, the market needs to consider how it will manage risk going forward. The new Act changes the rights set out in the Defective Premises Act, retrospectively extending liability from 6 years to 30 years after the building’s initial handover. It will also increase liability for buildings completed after that date to 15 years from handover. The Act will also introduce a five-fold extension to liability for safety defects in residential buildings.

Q: Who’s struggling to get PI cover?

A: Everyone is finding the high cost of PI cover challenging and when the prices increased, cover wasn’t aligned with contractual obligations. Many contractors are operating with exclusions that leave them either wholly or partly uninsured on projects.

If the main contractor on a Design & Build Contract is struggling to get contractual PI cover, they generally subcontract that part of the risk out to other professionals (such as subcontractors) so they can rely on their cover. Unfortunately, contractors are finding that there isn’t always someone to subcontract that risk out to, so the responsibility for claims will fall back on the main contractor. This contingent cover then becomes more of a primary exposure for insurers who will reflect that risk in higher premiums.

Issues can also arise when the cover provided at the contract signing stage differs from the cover in place at the time of a claim. A ‘claims occurring’ policy covers claims that occur during the policy period regardless of when the claim is made. This means that insurers will still accept a claim even though the policy has ended. ‘Claims made’ policies are more widely available and cover claims that occur during the policy period only and end once the policy expires. Insurers will no longer accept claims from companies that have changed insurance provider.

Q: What impact do you think The Building Safety Bill will have on the PI insurance market?

A: The new legislation looks broadly across all parties involved in the construction process and there are lots of positive safety measures being introduced. The introduction of a new watchdog, and the increased powers given to the Health & Safety Executive will follow the principles of transparency, consistency, accountability, and a general duty to plan, manage and monitor the build.

I think we still need more clarity from the Government in terms of specific liabilities. It’s too soon to assess the impact of the Bill, but the extended liabilities in particular, are likely to fuel premium increases going forward. However, if the process removes or even reduces the volume of construction claims occurring, then that would undoubtedly have a positive impact on insurance premiums.

Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.

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Categories: Professional Indemnity,