Architects’ face a challenging PII renewal: start early and prepare well
In our November edition of Construct, our Newsletter for Construction and Property specialists, we provided an overview of the challenging PII market for architects. Since then there has been a lot of coverage on the impact this is having on the profession and in particular, the smaller firms.
In a recent industry publication, an article addressed the continuing Professional Indemnity Insurance (PII) crisis and referred to it being a ‘ticking time bomb’ facing the profession. In this article, we expand on the PII issues facing architects and provide a reminder of what firms can do to improve and manage the renewal process.
Architects’ PII rates have been increasing since 2018 following the Lloyd’s of London review that placed UK PII as the second worst performing class of business in the London market. The hardening of the PII market has in fact affected all construction sector professions including architects, consulting engineers, and contractors who buy design and construct (D&C) PII policies. We have seen PII rates on average double or even triple over the last two years. This is largely down to a general correction in rating across the entire PII market, but also because of the well documented issues on fire safety and cladding and the ensuing claims. The previous decade had seen a steady reduction in premiums and these reached unsustainable levels when compared to the losses that many insurers were incurring on their books of business.
Our own observations
One of the key issues facing architects looking to renew their PII is the lack of a competitive market. Today, very few insurers have an appetite to write architects PII as new business and so there is often a perception that little can be done when the incumbent insurer is looking to increase the premium, reduce the scope of cover and impose a higher self-insured excess.
Another issue is that there is not a level playing field when it comes to premium rates and the extent of cover being offered. The insurers that write PII for architects have different premium rating structures, which they argue is due to different loss histories on their books of business. This has always been the case, but in the past new insurers competing for business would have been leveraging cost by putting a downward pressure on rates. We are experiencing varying rates on primary layer policies from 1% to 2.5% of fee income for a £2m limit of indemnity. Despite the lack of a competitive market, we have had success in moving our clients to new insurers, when the incumbent insurer’s premium has increased significantly or where they have looked to impose onerous exclusions that are arguably out of step with the rest of the market.
The variance in rates is mirrored by critical cover points like fire safety, with some insurers willing to offer an aggregate sub-limit for fire safety, albeit covering cost of rework/re-design only whereas some insurers are demanding full fire safety exclusions.
We have not yet seen any pressure from insurers to move the main policy limit basis to “aggregate for all claims in the policy year” as opposed to “any one claim”, but this is starting to happen amongst some consulting engineers and has already become the norm for D&C PII bought by contractors.
Echoing comments made by Marco Goldschmied in a recent Architects Journal piece, it is true to say that many small or low risk practices are viewed by insurers as just “an architect” and will be subject to the same rates and cover restrictions as the large practices providing the full suite of services. We agree a more granular rating approach should always be adopted and in most cases insurers will have different rates for different work activities, sizes of projects, project sectors etc., but in a hard market there is a tendency for some insurers to apply extra rate where they can.
Plan ahead of renewal
Firms need to be aware of the market challenges and how Insurers assess risk, and be particularly mindful of the specific risk exposures that exist in the work undertaken.
We recommend you talk to your broker well in advance of renewal and ask them to explain their plans for navigating you through your next renewal period.
Insurers are looking for the very best firms to underwrite, so don’t just rely on your proposal form to get the best terms out of the market. Talk to your broker about what additional information you can be providing to your insurers because even small things can make a difference and help alleviate any perceived concerns they may have.
If in doubt, talk to us and we would be pleased to discuss our approach and what, if anything more we can do to support you. At Howden, we have a specialist Professional Indemnity team that is dedicated to the construction and property sector. We have direct access to insurers and are committed to supporting our clients through regular updates, seminars and webinars on issues that impact risk.