Tips for securing PI insurance in a Hardening Market (construction)
In the midst of various large-scale catastrophes over the past few years in the UK construction industry — including the Grenfell catastrophe, Covid-19 and a series of devastating natural disasters caused by climate change — a large rise in skilled indemnity (PI) claims has resulted in a toughened PI insurance market in the sector.
Moreover, insurance experts predict that the PI market in the construction industry will continue to deteriorate in the coming months, making it increasingly difficult for construction firms to obtain sufficient PI coverage. As a result, it is important for construction employers to take appropriate action to limit the impact of the hardened IP market on their coverage options.
Top Causes of the Hardened PI Market
A hard market is characterised by high demand and lower supply – resulting in higher prices, tighter coverage requirements and extra limits on your policy. There are many factors that have contributed to the industry’s hardened PI market:
Broken supply chains— After the failure of Carillion, the resulting supply chain fallout created financial problems for companies across the construction sector. Now adding the effects of Covid19 has clearly demonstrated the harsh reality that no entity is immune from the effects of a partner’s insolvency.
Claims Chaos — More than anything else, the overall increase in PI claims across the UK construction industry has been a major cause of market deterioration. In particular, as construction projects tend to be larger and more complex due to the introduction of emerging technology (e.g. renewable energy features), they are consequently carrying additional risks and expenses. In response, any project-related disputes or losses typically result in costly claim settlements for insurers
Simply put, insurers have become increasingly wary of offering cover to construction companies in reaction to signs of a lack of supply chain flexibility, increased exposure to vicarious liability, and a sector-wide economic downturn.
Contracting concerns — Owing to the competitive nature of the construction industry, reaching a contractual arrangement with the client as soon as possible has become a crucial component of getting work completed. However, doing so also leads to a contract that suddenly emerges, which aims to appease the client rather than to restrict the employer’s liability. Consequently, construction firms have become more likely to make claims resulting from contract disagreements, leaving insurers to pay the hefty price tag.
Fire safety fears— Finally, the Grenfell disaster has raised awareness of fire safety and industry issues. Since the government revised the cladding legislation earlier this year, insurers are understandably more worried about the risk of expensive cladding claims.
Implications of a Hardened PI Market
At a glance, the explosion of construction industry PI claims from sector-wide accidents has prompted a number of insurers to stop selling PI coverage altogether. Further, the insurers that have remained in the market have implemented a variety of measures to limit their exposures and reduce their risk of continuously paying out costly claim settlements.
How You Can Secure Adequate PI Cover
Despite the harsh implications of the hardening PI market, you can help ensure your construction firm maintains appropriate insurance cover with this guidance:
Invest in risk management — Now more than ever, it’s vital that your organisation invests in robust risk management processes to combat industry concerns and provides documentation of these practices to your insurer upon renewal time. Specifically, risk management reports should illustrate the following:
– Proper cash flow processes and healthy profit margins
-Efficient supply chain management (e.g. constructive partnerships with vendors, due diligence on supply chain risks and well-distributed liability agreements)
– Robust internal practices and standards to mitigate on-site risks
Protect quality contracts— especially in the current PI market, it’s not worth rushing through a contract. Be sure to communicate effectively with clients in order to establish smooth, comprehensive contracts that clearly outline the obligations of both parties. And don’t forget to document these contractual risk management practices for your insurer.
For additional guidance and insurance solutions to combat the hardening construction PI market contact Vista Insurance Brokers to discuss what level of cover and unique policy options your organisation needs