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28 NOV 2019

TACKLING THE RISING COST OF PI INSURANCE

ACE will work with other organisations to tackle this challenge head-on

W

ith professional indemnity insurance premiums rising for consulting engineering firms, there is an urgent need to address the short-term market and create a sustainable solution for the long term, says Hannah Vickers.

It comes as no surprise that the latest ACE Benchmarking Report shows average expenditure for UK companies on legal and professional costs increasing at a faster rate than revenue. Chief amongst these costs is professional indemnity insurance (PII). So, what’s causing the continuing rise in PII. The deterioration of contract conditions is certainly one factor as is insurers leaving the market. We also have the aftermath of Grenfell, which is making providers ever more nervous and risk averse.

Short-term actions
Firms can take action now by speaking to brokers early and preparing all relevant information in particular activities which might be perceived as high risk, such as cladding. To choose the right policy it is essential to understand particular financial to which a firm might be exposed and these will differ based on ownership structure and limits of any personal liabilities. Of course, there are several routes to managing this, but firms should put a plan in place by working closely with their broker.

Medium-term solutions
At ACE we are researching options for government intervention, seeking to put in place a sustainable solution. This could take the form of a government-backed scheme insuring specific clauses or underwriting the level of risk akin to floods RE arrangements. We might even see the rise of alternative arrangements such as firms creating a mutual where they collectively pay in and cover any claims across a number of firms.

We will look at risk transfer and the quality of contract conditions. Very few clients knowingly want to transfer levels of risk to the suppliers at unsuitable or uninsurable levels, despite this becoming increasingly common. In response, ACE is actively engaging clients, supported by intelligence from our members. Industry can reduce the perceived level of risk by increasing the transparency and robustness of our competence, qualification and assurance systems. This is currently overseen by the professional bodies as an almost pseudo-regulator and assurer of our competence. This framework has been challenged recently and improvements recommended by Dame Judith Hackitt in her Building Safety Review on high risk buildings. We should implement the changes here without delay and take the learning she highlights into other parts of the sector. This would provide confidence to the insurance industry that we have robust and transparent competence and quality systems in place.

Long-term sustainable regulation
In the long term though, there is clearly a need for the evolution of the current system to one which sustainably regulates and insures the industry. Our Future of Consultancy initiative highlighted the need for industry business models and contractual arrangements to change to meet new challenges. It may be that we might need different PII arrangements for alliances akin to integrated project insurance, so encouraging a more collegiate and collaborative approach to problem solving and lowering project finance costs through the ‘wrapping’ effect of an integrated project policy.

There’s no quick fix for such a significant challenge, but ACE will now be bringing organisations together to tackle this challenge head-on.

This article originally appeared in the November/December 2019 issue of Infrastructure Intelligence.

Hannah  Vickers

Hannah Vickers

Chief Executive

Hannah leads ACE, representing members across industry and government.

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