Many will be aware that the warnings given by the ASUC insurance broker, Mark Richardson of MPW Insurance, around 2 years ago have come true. In fact, very true: the PI market is very hard at present with anecdotal evidence of premium increase of at least double and in some cases ten-fold for this year’s cover.
The Grenfell disaster has been blamed in part for market conditions, but in truth the PI market was hardening even before that tragedy as losses were becoming excessive for insurers.
Indeed, the PCA Structural Waterproofing Conference held on the 17th July 2019 at Warwick University highlighted these same issues through a number of the presentations. The key words in the final thoughts presented by ASUC Executive Director Rob Withers included: ‘mitigation’, ‘fit for purpose, and ‘who is contracted to do what?’
So, what can you do to mitigate these increases, and have you considered that the cost of PI is now prohibitive for your company? Remember those collateral warranties you may have signed agreeing to continue to provide PI cover for the next 12 years? The normal caveat to such clauses is ‘where reasonably practical’, a lovely legal term that would need to be tested in court should a claim arise.
The point of PI is to protect you, a point very well made by a lawyer at July’s PCA Conference. Thus, if you have been negligent a party will sue you, and your PI cover will react to that claim. Not taking PI insurance will not stop anyone suing your company, but clients do tend to litigate against those with cash, strong balance sheets and insurance!
Latent Defects Insurance
For some years ASUC has been pointing out the benefits of our latent defects insurance (LDI) schemes, the DIG, BIG and FIG, and has always run the comparison of a policy that is direct between the client and the insurer at practical completion versus a claim-made policy like PI. That is to say: no policy this year, no claim!
Whilst PI may well be a necessary evil for you to protect your balance sheet, an acknowledgment by your broker and insurers that you buy for client LDI will help offset the risks and be the first port of call for a claim.
The cost of PI
Have you considered that PI is not for you this year and that you will off load all design work to others? Remember, if your company is contracted to carry out a design process – even if you have subcontracted that process – the claim and the grief will come via your letterbox and you will need to check others’ PI cover in areas like excess and limits of cover to ensure continuity. Most PI claims result in very heavy legal fees and your letter box will not stop these fees hitting your P&L accounts.
One other related topic to consider is approved inspectors for building control. One such company, Aedis, has already stopped trading because they failed to renew their PI cover. PI cover for private inspectors is mandatory by law. There were only two approved insurers, but one withdrew from the market and the other will not take on any new business. So expect more approved inspectors to stop trading and in those cases LABC are also mandated to take over, but be aware that they will require additional fees from you to do so.
A final thought straight from Rob Withers’ presentation at the PCA Conference was this: with the rising cost of PI insurance, the inclusion of the latent defects insurance premium in your quotes should now look more attractive than ever. ‘Look after yourselves and each other.’