Noticed a change in your PI premium and cover?
Conditions in the Professional Indemnity market have changed significantly over the past 12 months. For over a decade the UK PI market has been ‘soft’. This means that the supply of capacity for PI cover far outweighed the demand for it from businesses. This was largely due to investments in other sectors having a low yield and many outside investors seeing insurance as being a way to make money. That meant that with more insurer competition there was more choice to consumers, so to compete, insurers have had to continue to lower premiums and increase cover to retain existing business or obtain new business which has essentially made the market unprofitable and unsustainable.
Struggling to find the right cover? Speak to our broking team today on 0345 365 2121
Less options in the marketplace
In a recent study by Lloyd’s, PI Insurance was found to be the 2nd worst performing class. This has prompted a major rethink by Lloyd’s about its members and the underwriting strategy moving forward to once again make this class of insurance tenable for the insurance companies and syndicates who underwrite it. They have seen their members’ business plans and after review have put 5 insurers on ‘watch’ and revoked membership of 2 insurers who have been underwriting outside of its parameters.
The Grenfell effect
In addition to this study we had the Grenfell disaster in June 2017 which has hit the UK Insurance market significantly. In the past year we have seen circa 15 major PI insurers confirming they are no longer writing PI, with the rest of the market now offering less capacity, restricting the cover they are giving and changing their underwriting appetites. The outcome of such moves means that for the first time since 2001 we are seeing premiums increasing and cover reducing on certain lines of business – design and construct, engineers and architects firstly – with other classes no doubt to follow suit as the market tries to recover from multiple years of running at a loss.
One significant move the market has made is to reduce or exclude cover available arising from cladding.
Previously, the PI insurance market did not restrict cover for cladding, so businesses enjoyed full cover. The Grenfell disaster made insurers review their portfolio to establish how exposed they could be to cladding related claims. The result has been a market wide restriction of cover with insurers taking different stances in how they approach this. Some insurers have taken the stance to exclude any claims relating to the combustibility of cladding. Some exclude any claims (combustibility or otherwise) relating to cladding containing aluminium composite material and others have taken a more pragmatic approach. Rather then exclude cladding in its entirety or in respect of any combustibility, they have chosen to provide cover but restrict the level available. They have done this by applying an aggregated limit of indemnity and/or covering only the cost to rectify / redesign the cladding and/or remove any consequential loss from a cladding claim.
In addition to the above, some insurers have now broadened their cladding exclusion to exclude ‘fire safety’, which impacts not only cladding related firms, but architects, engineers and surveyors far more than the previous pure cladding exclusion.
The impact of hard market conditions
To compound matters, as far as the market is concerned, towards the end of last year, insurers were declining to offer terms on all lines of business because they ran out of insurance capacity to do so i.e., they had already reached their maximum written premium threshold. This reduced further the number of insurers able to write PI insurance which inevitably meant that the rates continued to rise significantly. At the start of the new year, there was some additional capacity, however we continue to see the higher rates that we saw towards the end of 2019 and going forward insurers will be more selective in their underwriting processes.
This is not only affecting the Design & Construct sector but is now impacting all professions related to construction, with insurers not only increasing premiums, but also amending terms at renewal, e.g. any one claim limits changing to aggregate, civil liability wordings changing to negligence, reducing line sizes, excluding consequential loss or adding warranties to current policies that had previously enjoyed unrestricted cover.
Our view is that this hard market will continue through this year until at least 2021, which will be dependant upon additional capacity in the marketplace, and people reinvesting in PI.
Professional Indemnity cover is vital for many construction trades. If you have noticed changes in your policy, or are finding it difficult to get the cover you require, speak with our broking team today. Call us on 0345 365 2121.