Professional Indemnity (PI) Insurance for Chartered Surveyors – A review
2020 has undoubtedly been a challenging year for everyone. However, in respect of Professional Indemnity (PI) Insurance for Chartered Surveyors, the market has, and continues to, encounter significant headwinds; in respect of changes/restrictions to policy coverage, availability of cover and pricing.
What are the factors, and why?
Over the past 18 months, there has been significant change in the insurance market with a number of insurers withdrawing from the PI market and rates hardening (increasing). This started as a result of a 2018 Lloyd’s of London review, which highlighted the underpricing of PI Insurance and showed that two thirds of syndicates were underwriting at a loss. Consequently, a number of Lloyd’s syndicates withdrew from some or all of the PI Insurance market. This contraction of capacity and rate review has permeated through to all participating primary insurers
Fire Safety Exclusions, as a result of the Grenfell Fire disaster:
In May, the Royal Institution of Chartered Surveyors (RICS) removed the prescribed fire safety exclusions wording from the minimum policy terms and has now permitted insurers to apply their own fire safety exclusions. In addition, following concerns around completing the EWS1 form and the liability that could derive from RICS members that complete the form, an exclusion of liability has been inserted into the new terms.
Additional changes to the minimum policy wording by the RICS:
Insurers are now permitted to revise their wording to apply:
The excess being applicable in respect of defence costs
Unlimited aggregate round the clock limit of liability, rather than ‘any one claim’
The Covid-19 Pandemic:
The economic consequences of the pandemic will undoubtedly be very significant and insurers are forecasting that the resulting recession will, as with past economic downturns, lead to an increase in claims activity and resulting losses for insurers.
What impact have these factors had on the PI market?
Across the spectrum of qualifying insurers, rates have increased. Minimum increases of 10%-20% are the norm. However, we have experienced, or heard of, some cases where rates have increased by significantly more (>50%). Many insurers have adjusted their underwriting strategy for Surveyors and have been looking to reduce their exposure by reducing their limits on existing business and the appetite of underwriters to write new business has become very limited. Unfortunately, there has been a number of instances where insurers have declined to offer renewal terms altogether – both for primary and excess layer cover. No surprises but firms with lending valuation exposure have been hardest hit!
The introduction of the unlimited aggregate round the clock limit of liability for primary cover has had the, perhaps unintended, consequence that excess layer capacity attaching above the primary have increased their rates considerably, as their potential exposure has increased. This introduction has possibly been another factor in lack of appetite for new business amongst excess layer insurers.
Tips to help you navigate through the current market conditions
Start the renewal process earlier. Make sure your broker has all the necessary information much earlier than you might have done previously. Most underwriters are requiring more information than in previous years. In addition, as underwriters are still working remotely, turnaround times are taking longer than they were in pre-Covid times. Finally, your broker may need extra time to replace cover in instances where insurers have declined to invite renewal or have changed the cover they are willing to offer.
Market knowledge, experience & insurer access have never been more important. A specialist PI broker, rather than a general commercial broker, will be able to advise you on the full range of available options and their implications. In some cases, it could mean the difference between obtaining cover and not.