Professional Indemnity Insurance changes hitting Construction

PI Insurance is going through a particularly rocky period, with long standing trends in the industry recently coming to an end. The PI market had been ‘soft’ for a long time, meaning the supply outweighed the demand – which in turn led to low premiums and extensive cover, as insurers cast their net as widely as possible to bring in both new and existing customers.

This trend was unsustainable, and we’re now witnessing a significant ‘hardening’ of the market, meaning that premiums are rising.

What is PI Insurance?

Professional Indemnity insurance is an often essential expense for businesses that provide physical services such as construction and architectural design.

In order to protect themselves from claimants that assert they haven’t fulfilled the contractually obliged services, PI insurance is a safety net that could protect your business from significant damages should something go wrong, despite the best of intentions.

This makes it particularly important for the construction industry, and some regulatory bodies require that a business has it in order to practice in their industry at all – all of which makes the current situation particularly troubling.

Why is it rising?

Analysts have said for a long time that the cheap prices and extensive cover could not last, as it brings into question the feasibility for insurers to carry on paying out – low incomes mean the incentive of profit is weakened.

One particularly tragic event, Grenfell Tower, ended up being the catalyst for change – as the dangers of unsafe cladding became entirely apparent for the world to see. Initially premiums rose across the board as insurers tried to cover their own backs on cladding payouts, while eventually they stopped covering fire safety or cladding altogether – a dangerous development indeed.

How did this impact construction?

The Construction Leadership Council conducted a survey in which a quarter of respondents said they had lost business because of the changes to PI Insurance. A staggering amount – and a completely untenable situation for both insured and insurer.

Grenfell led to comprehensive reforms regarding fire safety protocol in construction, with all new-builds needing fire-safe cladding, and old builds requiring reinstallation of cladding to bring them up to date with latest standards.

The real sticking point is that due to businesses being unable to afford PI, construction companies were unable to take on these jobs – leading to the crisis coming full circle, with unsafe cladding staying on buildings because builders couldn’t be insured to take it down.

How the situation can be solved

There is no easy solution to a hardening PI market, as the market being so soft over the last few years is one of the main reasons for it receding now – but you can put yourself in the best position you can in order to secure cover that isn’t too limited and expensive to boot.

The driving factor for insurers is risk – so if your business is on top of its risk management and can prove as such, propositioning insurers early and with the appropriate documentation, then you can secure a better deal.

Lansdowne Woodward for your Professional Indemnity brokerage

At Lansdowne Woodward we understand how frustrating it can be to be priced out of a job due to extortionate insurance costs, having worked with hundreds of clients across the south to broker the best deal possible. If you’re worried about your Professional Indemnity premiums, why not give our friendly team a call to discuss your initial requirements – on 01202874989.