The insurance crisis in the construction sector continues to deepen.
More insurance companies announce their withdrawal from the professional indemnity market, driving up premiums further.
Architects, engineers, designers and surveyors are all seeing significant increases of up to 300% on their insurance costs and more cover restrictions, as market capacity continues to reduce.
We recommend you also circulated this guide to all Partners, Directors and Senior Managers for their general awareness and for risk management purposes.
What causes a 'hard' insurance market?
The insurance market has been highly competitive or 'soft' for the last 15 years. Over this long period, market rates dropped below profitable levels as insurers aggressively competed against each other for their market share, driving premiums down.
Against this reduction, the total volume of claims being notified continued to grow in size and numbers, eventually becoming unsustainable to the point that a significant market adjustment was necessary - a 'hard' market!
It is widely reported that the insurance cost of the Grenfell tragedy and the fear of more major claims relating to cladding and other construction projects, was the trigger for the current market adjustment. As a result of their fears, many loss making insurers have withdrawn from the market, allowing those remaining insurers to apply more restrictive cover and increase their rates.
How long will it last?
The insurance market moves in a cycle between 'soft' and 'hard' conditions. It will return to a 'soft' and highly competitive climate again at some point in the near future.
When this will be exactly is impossible to predict, but past experience shows that the hard market does not last long. When insurance rates return to a high level which the insurance market regards as satisfactory, insurers are attracted back into the market and the competition begins once again.
This may take another year so, but there should then follow a long period of intense competition once again when rates fall year on year.
What can you do about it?
In reality, there is nothing you can do to change the force of a harder insurance market but there is a lot a business can do to at least minimise the impact. Read our guidance points below;
- A good impression
- Risk management
- Know your broker
- Specify your deadline
- Review the level of cover
- Meet your underwriter
- Explaining claims and reserves
- Buying online
When you complete your proposal form, it will be reviewed by an experienced Underwriter. The completed form is a 'presentation' of your business to the insurance market, so spend some time making sure it looks professional. Scruffy writing or unanswered questions will all go against your business. They will also review your website and cross refer the information online against the information on your proposal form. They use all of this information to judge the quality of your firm.
If you spend time and money on risk management and improving quality, make sure your insurer knows about it. This could easily be overlooked and not reflected in your premium so you may want to add some notes on this subject.
Get to know your broker, it's important to have a good relationship. They are on your side, so ask your broker for their view of the current PI market for your profession (eg have market rates changed since last year) and their plan for managing your renewal. This should be done at least two months before your renewal date so that you can avoid any last minute premium increase or cover problems.
Aim to have your renewal terms and alternative quotations available at least one month before your renewal date. Within reason, ensure that timings for the renewal process are pre agreed and clearly understood by everyone, especially your broker.
Insurance rates rise and fall and so a flexible approach to the level of cover purchased may be necessary sometimes. Instruct your broker to obtain a range of limits so that cost and risk can be fully considered, giving yourself the option to adjust your level of cover up or down as necessary within budget. However, always keep in mind that professional indemnity insurance is 'Claims Made' insurance.
For larger policyholders, meeting your underwriter can have a very positive affect on your insurance cover. This can be set up by a good broker and will help establish a stronger long-term relationship with your Insurer. We encourage underwriter meetings for our larger clients.
If you have any claim payments or reserves on your record, don’t rely on a standard print out sheet to give the underwriter a satisfactory explanation. Give some background about the claim and some assurance on the actions taken to avoid a recurrence. If the underwriter isn't given the full story, they will simply apply a negative view and load up your premium or decline to quote.
Getting an alternative quotation is an easy process and competition will often result in premiums falling dramatically. Your broker should be one of your most trusted advisers but still needs to be tested sometimes if you want to avoid complacency.
Not suitable for everyone, but buying professional indemnity insurance online is becoming an easy and effective way of arranging insurance. It has a clear cost advantage to insurers which is passed on to the policyholder. Generally best suited for businesses up to £ 150,000 turnover and with no adverse underwriting features.
For more information about this subject or a discussion with one of our experts, please call us on 0345 251 4000.
This article is intended for information purposes only. Whilst all care has been taken to ensure the accuracy of the article it is not to be regarded as a substitute for specific advice. © Professional Indemnity Insurance Brokers Ltd