The professional indemnity insurance market for architects is large with many insurers battling for market share. They all offer policies at different premiums and with subtle but important differences in the cover they provide.
So it's important to have some understanding of how this market works to be able to make an informed decision on which product is best for your firm. For competitive quotation either complete a Quote Request form or call us on 0345 251 4000.
Whether you are a new-start firm or already buying professional indemnity insurance, our guide covers the following key points:
- How much does it cost
- Getting the best quote and cover
- How is the premium calculated
- Level of cover required
- The PI marketplace for Architects
- Examples of claims against Architects
- Do good impressions count?
- Examples of low, medium and high risk work
- Why us
In normal market conditions, rates for architects' professional indemnity insurance typically range between .5% and 3% of fee income, depending on the usual risk factors and market competition. Rates can also be higher or lower than this depending on the work undertaken, the claims history etc. Rates are discounted for new start firms as there is no history or legacy to insure.
You should also bear in mind that minimum premiums will also apply which can vary considerably between insurers. For example, a minimum premium for an architect could be £500 or £1,000, depending on the insurer selected. The minimum premium is the insurance company's starting premium for insuring any risk.
It's not good practice to buy architects' professional indemnity insurance online as a 'commodity' purchased only on its price. However good the policy wording is, professional indemnity is commercial insurance and coverage disputes can still occur. Most policies will require some tailoring to the policyholder, so use a specialist broker to get some good advice.
Professional indemnity is complex commercial insurance. When arranging this cover, most firms will require some tailoring of their policy to ensure it provides exactly the right protection for their business. This may be a small tweak to the policy or something more substantial....things that really matter when a claim occurs!
When buying this type of commercial insurance specialist advice from a broker is normally obtained. A good broker lowers the premium cost as well as providing valuable advice and support, especially on warranties and claims.
The rating of an architect or any professional indemnity risk is a complex process. Underwriters need to be highly skilled and require a significant amount of information to enable them to provide a quotation which accurately reflects the risk they are pricing. Premiums are calculated based on many factors which will include:
- The firm’s fee income
- Claims history
- Qualifications and experience
- Categories of work undertaken
- Projects undertaken
- The number of partners or directors to staff ratios
To assess the risk the underwriter will require a fully completed proposal form which they will consider in detail. They will also look at the firm's website or they may even look deeper online into a firm's background.
The Architects Registration Board (ARB) rules require a minimum limit of indemnity of £250,000 for each and every claim. The cover must be written on a civil liability basis; i.e. it covers all civil liability not just negligence.
But deciding on an adequate level of cover for your business is not an exact science, so we have put together a guidance note to help you in assessing the correct level of cover for your company. Please download a copy of our guide on the Limit of Indemnity.
In terms of premium value, architects' professional indemnity is estimated to be worth in the region of £ 75 million of premium income to the insurance market. This is for the 'primary' insurance cover and a further £ 30 million comes from excess layer or 'top-up' cover. This is paid for by the 5,000 firms practising in the UK who generate £ 4 billion in fee revenue. The RIBA recommends that all of their members should take specialist advice on professional indemnity insurance and this recommendation is made for a very good reason.
Since 2019, the insurance market for the construction sector has been seen as 'hard' although it is now beginning a steady phase of 'softening'. In this phase we expect to see greater competition between insurers, where insurance rates premiums begin to fall.
Professional negligence claims against architects are surprisingly common in the modern world – it ‘goes with the territory’ when working within the construction sector. Claims can be extremely costly, even when the architect is not at fault. We’ve selected some examples of professional indemnity insurance claims we feel many architects can relate to, whether they are a small firm or larger practice.
1. Background - Architects were engaged to design and supervise the construction of an office building. Once construction was completed an issue with dampness in the property arose. The builder and the architect were both joined in the action for substantial damages by the property owner. Outcome - The architect’s professional indemnity insurer defended the action. Specialist solicitors were appointed by the insurer and a successful defence was provided. The legal defence costs were £300,000 and covered as part of the claim.
2. Background - The firm was engaged as Architects in a large development project. A claim was made against the Architects by the development’s Management Company. They alleged the Architects had breached their duty to exercise reasonable skill and care in the design and the construction work or to ensure that the development was reasonably fit for its intended purpose. The management company sought damages in excess of £2,500,000. Outcome - The insurers appointed specialist solicitors to defend the Architects. Their professional indemnity policy paid defence costs of £45,000 and the claim was settled at mediation for £7,500.
3. Background - Architects signed a certificate of practical completion on a residential new build project. Various snagging issues arose that went unresolved by the contractors who then blamed design faults as the cause of the problems. Outcome - The insurers paid £450,000 in settlement and costs.
4. Background - A claim was made against the Architect where their client was alleging the design of a building was faulty and which was causing water infiltration and foundation issues. Outcome - The claim against the Architect was successful and their professional indemnity insurers paid £2,500,000.
5. Background - Various problems with the construction of a new house caused construction delays and additional costs for the project. This led to a claim against the Architect who was involved in the buildings planning, design and site inspection. Outcome - Amount paid £65,000.
6. Background - The Architects client had financial problems and became extremely difficult to deal with. Changing specifications, sacking contractors and taking fanciful claims all the way to court against anyone involved. The matter was successfully defended but hundreds of thousands of pounds of irrecoverable legal costs incurred. Outcome - £250,000 paid in legal defence costs.
7. Background - The new floor of a warehouse disintegrated after only a few months of use. A claim was made against the architect alleging deficiencies in the design. Outcome - Insurers felt the architects defence was not sufficiently strong to risk an expensive court case and decided to settle the claim at £110,000.
The presentation of your business to insurers is more important than you may think. It will influence the prospective insurer's perception of your business and therefore if the information is badly represented, this could influence both their judgement and the premium you pay. Quite simply, they are considering the risks that your business may pose.
Ensure that all of your information is clear and supply this to them with any brochures your provide and details of your website. It all goes to create the best impression of your business. Read our guidance on Risk Presentation.
All the professional work carries some risk and for architects this can vary considerably dependent on the area you work in. The list below gives an indication of where the majority of professional indemnity claims come from in your profession:
- Low risk - town planning, feasibility studies, interior design.
- Medium Risk - architectural design
- High Risk - new build architectural work, project management, basements
We have a wealth of experience arranging professional indemnity insurance for Architects of all types and size. We have the level of understanding necessary to represent your firm confidently in discussions and negotiations with insurers. We work hard to deliver long term insurance relationships, stability and reliability as well as value.
We are also independent and not tied to to any schemes or insurers, so you can be sure that our advice is impartial. For more information about this subject or a discussion with one of our experts, please call us on 0345 251 4000.
This guidance note is intended for information purposes only. Whilst all care has been taken to ensure the accuracy of the guidance note it is not to be regarded as a substitute for specific advice. This guidance note shall not be reproduced in any form without our prior permission. © Professional Indemnity Insurance Brokers Ltd