A Crisis in Construction - Professional Indemnity Insurance (PII)

There is new a systematic problem in the UK Construction Industry that is likely to get very serious, very quickly. This problem has the potential to throw the UK into recession and it requires Government intervention now.

Many firms are struggling to renew their Professional Indemnity Insurance (PII) and our world is becoming far more litigious.

Construction output in the UK is more than ￡110 billion per annum and contributes 7% of GDP. If this sector stalls the economy has a problem. So here it is, the market for construction sector PII has deteriorated dramatically in the last 12 months and continues to worsen. A large number of insurers are withdrawing from the market altogether, others are limiting their exposure, increasing premiums dramatically, introducing exclusions and increasing policy excesses. Architects, Engineers, Approved Inspectors, Quantity Surveyors and Fire Engineers are struggling to get cover at reasonable terms and pricing, and in some cases, unable to obtain cover at all. I hear there are now 5 Corporate Approved Inspectors (off cover), and by the end of September there could be 20 firms, unable to approve plans, answer emails or undertake site inspections.

It’s not solely a Grenfell problem or due to the rise in Cladding claims but this has not helped. The Grenfell tragedy has obviously contributed to the situation and cladding is a major concern for insurers but this is a broader issue of increasing litigation and associated costs, large claims linked to infrastructure projects and insurer exposures resulting from corporate failures such as Carillion plc.  

I am told there is no insurer in the market place offering cover to Approved Inspectors. That's a problem for the whole system.

We need Building Control professionals more than ever. A lack of PI will be a problem for the whole market. This was never solely a fire safety problem, although it is often couched that way. It was a quality of construction problem, a procurement problem and a systematic failure whereby people with inadequate skills were fitting inadequate products and the imperative batten passing of information between three or more clients at design, construction and occupation meant there was no golden thread. A misunderstanding of the critical information and communication that is necessary between professions at each stage, and a lack of trace-ability led to a systematic failing.

The industry is now bringing forth improvements in quality and competency from a technical perspective, but there is a dire need for professionals and the firms they operate to become more sophisticated when it comes to consideration of:

?            Exclusions on their PI cover (Cladding, life safety, property damage)

?            Standard Terms of Business

?            Contracts review, novations and warranties

?            Appointments

Projects don't just require competent professionals that know their subject or discipline. They need professionals that can manage their responsibilities on a project from start to finish and beyond. Every member of the design team has a duty to ensure a project is delivered beyond the initial excitement of appointment. Successful execution of a project requires a professional to act as the discipline guardian i.e. fire, acoustics, facade, structure and it must include a clear close out of scope and involvement. Professional bodies and other stakeholders in the sector such as Engineering Council, RICS, CABE, CIOB, CIBSE and IFE have a duty to upskill their members in these areas and show leadership by bringing this issue to the fore. 

My own firm is now of a size that it can just about swallow the six figure increase in annual insurance premium and has the legal experience internally to negotiate exclusions and review warranties and novations. However there are many firms that are simply not commercially aware of the liabilities they are exposing themselves too, unaware of the exclusions on their policies, they are blindly offering cover they don't have and signing legally binding novations and warranties without a full appreciation for the liabilities they are signing up for. 

So what?

With many firms going 'off cover' and unable to offer PII, the crisis is upon us now and will impact the entire construction sector.

It will lead to reduced activity in the sector and may well plunge the UK into recession unless Government acts fast. We are already seeing clients and others in the supply chain becoming more risk averse, attempting to load their risk onto others through the contracting process.

The industry cannot solve this one. It needs Government intervention and fast! Very fast!