PI insurance woes ‘causing construction firms to go under’

21 November 2019 | By Neil Gerrard

Construction firms are being forced to turn down work or in some cases even go out of business because they are struggling with “massive hikes” in professional indemnity (PI) insurance.

That’s the warning from the Confederation of Construction Specialists, which said that feedback from its members and the wider construction industry showed that design and build contractors, consultants and architects are all facing large increases in premiums.

“Excessive” PI insurance requirements and increasingly stringent prerequisites are also causing many insurers to refuse cover for building inspectors, the Confederation warned.

Coupled with rising premiums are changes to insurance terms including additional exclusions from cover and the removal of existing extensions such as fitness for purpose coverage, all of which were conspiring to make life difficult for construction firms, it added.

It said a range of reasons were to blame for insurers being more reluctant to offer PI insurance cover, including: issues around under-performing technology in waste and energy projects; construction company insolvencies; escalating risks due to onerous construction contract terms; increasingly tight margins and potential losses due to cladding exposure.

Fewer PI insurers

Meanwhile, there are fewer insurers in the PI market due to mergers of some companies, the flight from the sector of others, and depleted reserves as a result global events of those that remain.

And the Confederation contended that main contractors facing difficulties meeting their requirements were making the situation worse by pushing risk down the supply chain and insisting on onerous PI insurance requirements, with £5m-10m of cover for subcontractors becoming “the norm”.

Gerald Kelly, general manager of the Confederation of Construction Specialists said: “The assumption is that sub-contractors will cover the main contractor exposure by having adequate PI insurance to do so. However, as sub-contractors are finding it increasingly difficult to obtain such coverage, this is blatantly not the case.

“Main contractors need to understand that just passing their problems down through their supply chain is not the answer as they have the same PI Insurance issues too. Collaboration between the client, main contractor and the supply chain has to be a positive step forward combined with an understanding of how all parties conform to common risk management standards (ISO) to mitigate future claims. Moreover, the insurance industry is not working for UK Construction and is having a damaging influence on it. The government needs to investigate the insurance industry with the intention to recommend actions to propel the insurance industry to a position where it can support UK Construction and not hinder it.”

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