Blog: Is a change really as good as a rest?

One would have imagined that recent changes to the minimum terms laid down by the Royal Institution of Chartered Surveyors would have led to an easing of the UK professional indemnity insurance market, but regrettably this could not have been further from the truth. On 1 May RICS implemented the PI rules but why this change will make it easier to buy PI is anyone’s guess.  

Post the Grenfell Fire in 2017 the minimum terms have changed to include fire safety exclusion, a change to the limit of indemnity to aggregate plus unlimited round the clock reinstatements, and the most recent change being the mandatory fire safety cover on buildings up to four storeys tall.

Unintended consequences
The change from any one claim cover to aggregate plus unlimited round the clock reinstatements was thought to ease the market – but quite the opposite happened. For decades excess of loss insurers provided indemnity to members of the RICS for catastrophe losses above a primary policy.

With this change, excess of loss insurers are now faced with potentially providing primary policy coverage which many had never before anticipated or factored into their premium pricing. These insurers always relied on the skilled knowledgeable primary insurer, so how could they be expected to step down to become a primary insurer?  

This change, on the face of it, may have seen as a positive move by the regulator – but nothing could have been further from the truth. Complex professional negligence claims can take many years to settle, so the change from any one claim to aggregate indemnity will mean that those insurers left in the marketplace will not know the exact burning costs on the portfolios for many years. Some excess of loss insurers may decide that this profession is out of underwriting appetite and will leave the market until the regulator changes the rules back to any one claim cover. 

The issue of fire safety insurance cover and EWS1 form exposures is currently the single biggest issue in the construction PII market.

A recent government announcement that it would provide a £3.5bn fund for the removal of unsafe cladding has been well received. These monies provide for leaseholders for the removal of unsafe cladding on all residential buildings over 18 metres.

Further to this, a scheme has been set up for those buildings between 11 and 18 metres (four to six storeys tall). This will make a good impact on the suggested overall cost of circa £16bn to replace all unsafe cladding.  Perhaps this is why the RICS brought in the new PI rules relating to properties up to four storeys tall? 

As we wait for the upcoming Fire Safety Bill there are currently more questions than answers. Let’s hope all becomes clear very soon, otherwise the PI market may contract still further and the cost will undoubtedly rise not fall.

One thing is for sure, the ever-resourceful insurance industry will not rest on its laurels.

Nick Bender is joint MD at MGB Insurance Brokers

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