Architects: PII 2022 Review and Forecast
10 November 2022
When forecasting what lies ahead, it is useful to start by reflecting on what we have seen over the past two years, with Professional Indemnity Insurance (PII) for professional services firms being firmly under the microscope.
The economic disruption caused by Covid-19 and the concerns from Insurers around their exposure to Cladding and Fire Safety losses, created a “perfect storm” for architectural firms purchasing PII. The “hard” PII market has been as challenging as any seen in the last 30 years which has created the following issues:
- Insurers demanding far more information (both in quantity and detail) than in previous years particularly on ‘High Risk’ work.
- Slow turnaround times from Insurers, but there are signs of improvement now that new working patterns are more established.
- Insurers desire to significantly increase rates, particularly on excess layers.
- Less discretion available to frontline underwriters with referral and peer reviews required.
- Insurers reducing their capacity to manage their exposure.
- Full or partial Fire Safety & Cladding exclusions.
- Change to basis of indemnity for fire safety to a single aggregate limit and its effect on past and future contractual obligations.
Capacity and appetite
There is still a level of uncertainty for insurers as we move past the pandemic and settle into life post-Brexit and, with the talk of a recession looming, there is a heightened level of risk because of the effect on supply chains and the cumulative effect on construction price inflation, which is rising at the fastest rate in a generation.
Both the Architects Registration Board (ARB) and the Royal Institute of British Architects (RIBA) have undertaken consultations in 2022 to address rising concerns in the community on the availability and cost of PII.
The ARB has recently issued new draft guidance on the insurance arrangements
architects are expected to have in place to remain compliant with the Code of Conduct and Howden is working very hard to encourage new capacity and increase appetite amongst insurers for new business.
Where to focus your attention
It is always an advantage to know the risk issues on your insurers’ radar at renewal. These change over time and can be driven by a range of factors including recent claims activity, concern about emerging risks, regulatory changes following the Building Safety Act 2022, or the general economic environment and its potential impact on the profession.
At Howden we are always keen to highlight issues that are under the spotlight, so that our clients have an opportunity to consider what work they might need to do in advance of renewal to “get their house in order”.
Some insurers are more sensitive to particular issues than others. If you know what the concerns might be for your PII insurer, you can then prioritise where to invest the time and resource needed to address these issues. Below we outline some key areas for firms to consider in advance of their next PII renewal.
Building Safety Act
Fire Safety in buildings has been in the spotlight since the Grenfell tragedy and continues to be a big concern for insurers.
The Building Safety Act 2022 introduces a regime overseen by a new Building Safety Regulator, with particular emphasis on "higher-risk buildings".
In doing so, it creates new;
- obligations that apply throughout a building's life cycle;
- requirements relating to the competence of those involved with buildings (including residents);
- means of enforcement for breach, including criminal sanctions, together with an extension of the limitation period for civil actions; and
- financial costs relating to construction, including a developer levy that must be paid before construction begins.
Further, the Building Safety Act extends the period of liability for some claims to 30 years. This is of particular concern to Professional Indemnity insurers because PII is arranged on a claims-made basis and extends to cover any historic liabilities unless specifically excluded.
The changes under the new Act are vitally important to ensure the future safety of residents living in high rise buildings. Several Insurers in the PII market have welcomed the changes and see this as a positive step to ensure safer buildings. But they have expressed concerns about the extension of the limitation period from six years to 30 years, to be applied retrospectively. This could have implications for firms purchasing PII as insurers may want to know more about firms’ historical projects and the extent of internal reviews into past cladding work.
The ARB have responded to the implementation of the act by updating their Architects Code of Conduct and Practice as it pertains to PII. Under the draft guidance it will no longer be a matter of misconduct for architects who, despite making reasonable efforts, are unable to acquire retrospective insurance to cover historic liabilities. This is often through no fault of their own as the availability of retrospective cover for certain types of claims, such as cladding and fire safety is extremely limited. However, it remains the case that architects should have adequate insurance before undertaking any new work, but coverage for certain types of claim – including fire-safety and cladding – can now be held in the aggregate and limited to direct loss only.
Anticipating what will happen to architects PII in the next 12 months involves a large element of crystal ball gazing. In the absence of any new insurers joining the architects’ PII market it may be prudent to consider adjusting your budget to allow for a further uplift in your PII premium at your next renewal particularly if your income has increased. However, you should always keep in touch with your broker as the next renewal approaches because the position could change quite quickly.
When the market cycle does move on, firms should not expect premiums to return to pre-2019 levels. Prior to the hard market, PII rates for architectural firms had been at an all-time low and in the insurers’ view, the increase we have seen in recent times is in large part a general market correction.
Matt has over 30 years’ experience in Professional Indemnity insurance. He and his team find and implement insurance solutions for clients in the Property and Construction sector including surveyors, architects and engineers.