Now more than halfway into 2023, and the market for Construction Professional Indemnity (PI) has moved on vastly.Recent months have witnessed the expansion of capacity within the market, the result of both the opening of 'new' markets, and growing appetite for new business among established insurers aided in part by increasing interest rates.
Cladding and fire safety exclusions ease
The construction PI market first started to harden back in 2018 and since then, rates have been on the rise. During this period, many insurers were remediating their renewal books, and earning considerable premiums. With premium rates now returning to profitable levels, however, the market once again represents a more attractive proposition for insurers, who in turn have greater capacity and appetite to underwrite new business.
In particular, the growth of healthy competition within the market is improving conditions for buyers, with insurers looking to increase lines on held risks, or offering rating decreases to firms with strong claims records and sustainable growth. Small and medium-sized enterprise (SME) buyers stand to benefit the most from this trend, thanks in part to their lower relative risk exposure. Insurers do continue to show some hesitance with regards to larger, multinational exposures, although premium rates are decreasing in the right circumstances.
One notable change is the availability of cladding and fire safety cover for the majority of firms. Whilst the standard IUA cladding and fire safety clauses remain, complete exclusions for these risks are becoming rare. Once again, this reflects a growing appetite within the market. As insurers increasingly seek out new business, they must keep themselves competitive. Added to this, previous projects involving cladding and/or potential fire safety issues will, in most cases, have already been notified to prior insurers. Therefore, any cover given going forward will likely not apply to the entirety of firms' work profiles.
As ever, insurers continue to consider cladding and fire safety issues on a case-by-case basis. Where firms can provide evidence of effective risk management and clear information, insurers are demonstrating a willingness to write limited cover back into the policy as required. However, this is likely to have a retroactive date of inception where previously excluded entirely. Where cover is available, it is still largely on a restricted basis, with aggregate limits, increased excesses and consequential loss exclusions applied.
Insurers are no longer insistent on specific cladding and fire safety questionnaires looking at a 12-year portfolio, easing the administrative burden on an insured.
BSA among lingering uncertainties
Despite these improvements, uncertainty remains around the lasting impact to the insurance industry in the wake of the Grenfell Tower disaster. The Building Safety Act (BSA) came into force on 28 April 2022 and implements a number of Dame Judith Hackitt's recommendations in her 2018 report 'Building a Safer Future'. Although the full ramifications of the BSA are not yet apparent, it has undoubtedly increased the potential for civil claims.
June 2022 also saw the extension of the limitation period under s1 of the Defective Premises Act, which changed from six years after the completion date of works to 30 years retrospectively and 15 years prospectively. In the wake of these amendments, there is some evidence of spurious notifications on historical projects that would have previously been statute-barred. These remain in their infancy, however, and it will be some time before the impacts of the extension are fully understood. Insurers remain vigilant as to how this field will develop, and it presents a challenge to an otherwise improving market.
In addition, the principal designer role was also expanded upon within the BSA, creating increased obligations related to building regulations. This too has the potential to create a more vibrant claims environment in the Construction PI sector.
Recommendations
When it comes to renewal, there are a few key considerations that firms should make:
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Early engagement with brokers and insurers remains vital. Ensure that all information is provided at least 6 weeks prior to renewal to enable forward planning, as covers and premiums may change.
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Meet with your insurer(s), if possible, in order to better articulate your needs and constraints. Doing so will provide firms with the best forum in which to discuss issues and identify optimum solutions.
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Take steps to include supplementary information in renewal submissions regarding subcontractors and supply chain. Questions to consider include: do supply chain partners maintain their own PII? Are contracts back-to-back? Are liabilities capped in contracts? Providing this information will give insurers insight into firms' risk management and due diligence processes.
For further information, please visit our Lockton for Architects and Engineers page, or contact:
David Isherwood, Senior Vice President, Global Professional and Financial Risks
T: +44 (0)20 7933 2195
E: david.isherwood@lockton.com
Shanna Renaud, Vice President, Global Professional and Financial Risks
T: +44 (0)20 7933 1132
E: shanna.renaud@lockton.com