Post Grenfell reality bites for Professional Indemnity insurance

The shock waves from the tragic Grenfell fire are still reverberating loudly through the Professional Indemnity (PI) insurance market – particularly in the construction and property sector.

Premiums rise as capacity declines

After years of a soft market with Insurers vying for volume, reality is making itself felt.

Lloyd’s of London have confirmed that PI is the second worst performing class in the London market. In 2017 across non-US architects and engineering PI, Lloyd’s paid claims of £272m against premium income of only £170m. This is unsustainable. Already several syndicates have ceased writing PI. Others have become far pickier about who they choose to insure – significantly reducing their volumes.

Lloyd’s insisted that the remaining loss-making syndicates provide an action plan to return to viable profit. There was a sanction that if the plan didn’t satisfy Lloyd’s themselves, the syndicate would not be allowed to continue writing the class in 2019. This has resulted in many syndicates proposing a 10% – 20% rate rise.

Restrictive conditions intensify

The interrogation of policyholders is becoming much more probing then it ever has before.

Contractors are finding that they are being asked to complete ever more detailed questionnaires about the cladding they use. The reason is that as remediation work continues on the 300 high-rise ACM-clad buildings that have been identified, a range of costly associated issues are coming to light – for example, insulation, fire compartmentalisation and cavity barriers.

The all-round tightening of fire safety regulations is having yet another effect on insurers. They see their policyholders’ losses crystallise before they know what can be recovered further along the supply chain. There is the ever-present fear that these suppliers may have become insolvent, or had their own PI cover severely limited.

Thus, restrictive conditions are escalating.

The market hardens

All of the above means that for the first time in a decade the market is hardening, driven both by the loss of capacity and the raising of the bar on terms.

Policyholders are seeing a significant increase in premiums and excesses. Insurers are also moving from any one claim limits to aggregate limits. In addition, there is a tendency to exclude or restrict cover of fire safety issues from renewals – which will affect claims on projects from previous years.

How to negotiate the minefield

However, even though the clouds are dark, it is not all doom and gloom. Companies that spend a little more time with their broker, and clearly spell out their procedures, are winning the confidence of insurers and reaping the benefits with more competitive terms and premiums.

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