The Construction Leadership Council as a continuation of its targeted activity, has published an analysis of a cross industry snapshot on the sector's perception of professional indemnity insurance (PII).
This thorough "state of the nation" report, which covers both consultant and contractor PII, paints a fairly bleak picture, but confirms the experience of all of us active in this area.
Let's be clear about some of the reasons; construction has become regarded as a poor risk by insurers, particularly given fire related concerns, a perception of under regulation and lack of quality assurance. Insurance is a market like any other and trends emerge. Layer that with insurers paying out more in claims than is received in premium income at a time when investment returns have not been consistent and the issue becomes clearer. A number of insurers have left the PII market as a result. The insurance market can overreact of course and that is certainly a possibility on PII.
PII is a product like any other, but is it the right product for construction? PII is a liability insurance, it provides an indemnity to the insured in the event of a legal liability within policy coverage. Clients, investors and funders often work on the basis that PII held by members of the consultant and contractor team benefits them. Insolvency, a failure to pay premium or a gap in cover (we see that really strongly in caps and exclusions for combustibility of the building envelope) can all turn that into a mirage. PII is there for the benefit of the insured.
So what needs to happen to improve the position; views will vary but there are two key themes:
- a cross sector approach to providing much better assurance of quality - the new building safety regime will help here significantly, but more is needed - a complete digital approach to quality assurance in construction - mmc done well has much to offer here
- an honest re-examination of what insurance the market needs. PII has a part to play of course, but as liability cover it is always not going to fall short on expectation.
What alternatives are out there; there are three pack leaders with potential:
- 'Owner' controlled project insurance through the construction stage
- Latent Defects Insurance to benefit owner and occupier
- Insurance backed alliancing
each of these does overlap to a certain degree but they do get much closer to meeting market expectation. Restrictions on PII could just be the spur needed to do things differently.
More on the potential of these products in later posts. For now, take a look at the CLC Report and see what you think about the need for alternatives. Insurers cannot do this alone - the market needs to be created. Government and the real estate sector have an opportunity to influence the products that are needed. Spoiler alert; it's not just about PII.
Significant cost increases and the introduction of new restrictions on professional indemnity (PI) insurance are preventing companies taking on projects and could delay essential work on building safety.