With the new year arriving, I thought it might be a good idea to share with my connections and contacts my own personal take on the current state of the Construction Professional Indemnity (PI) market and where we see it heading in the next couple of months.
The market certainly remains in what we refer to as a 'Hardening state,' and to me, it seems to be looking like it will continue in this direction over the coming months.
What exactly do we see so far, and what should our regional brokers and insureds expect over the coming months?
The range of rate increases is circa +10% to up to 100% is dependent on several factors including risk profile, claims performance and new capacity is required to complete programme, so last year we may have found two insurers were used on a 10mil limit, this year it may be 4 or more. Furthermore, we see insurers impose higher excesses.
I will add that touching on the higher excesses can be used as a reduction tool in these hardening times, where an insured may choose to opt for higher excesses of anywhere between GBP 10,000 - GBP 100,000 to reduce their premium.
As underwriters continue to be overwhelmed with the number of renewal and new business proposals they are receiving due to insurers exiting the market, you will find they will approach risks with a more selective approach. From their perspective, whilst being in such high demand, they can be able to pick and choose the clients they wish to quote and offer cover for.
THIS is why it is so important, your brokers and Lloyd's brokers are guiding you on how to present a risk correctly, including high- lighting risk management, health, and safety, changes to the business implement post-loss (if claims have occurred), really digging deep into the 'scarier' areas of work such as basements, cladding, groundworks, swimming pools, and structural works to show the risk management and work undertaken. The measures taken to ensure the business copes in the pandemic.
Reduction in Capacity and 'Line Sizes'
Insurers are continuing to reduce the line sizes they deploy on each risk, meaning more insurers are needed to complete programmes, which will cause price increases. Again, this really is why you need a Lloyds broker representing you, who knows how to structure programmes effectively to ensure your client can meet their main contractors' requirements.
In light of the global pandemic, underwriters, of course, have their concerns on how your business is coping with the challenges brought against us in business by Coronavirus; it is important insureds are completing question sets or our Servca COVID 19 Questionnaire. The areas of concern will include but not limited to:
- Firms current financial position and how COVID-19 has financially impacted their business
- Are contracts on time, and have there been budgeting issues or delays? If so, how has the firm adapted to ensure costs are met, the force of Majeure clauses are not triggered, and monitoring of delays within the supply chain and the availability of materials.
- Business Continuity plans are likely to be requested
Increased Deductibles and Additional terms imposed
We are finding it is quite rare to not see an increased deductible at renewal or additional clauses imposed such as basement restrictions, cladding, and fire safety clauses, COVID -19 Exclusions, at times we have found increased excesses being applied when TCV's exceed a certain value, BIPD exclusions or sub-limits and more.
A new clause I have also seen this week is manufacturing and transit exclusion, which excludes claims arising from the manufacturing and delivery of products where a third party undertakes such; this ties back in with the fearsome insurers may have due to the delays on projects COVID-19 may cause.
Basis of Limits of Indemnity moving from AOC to AGG
This is another pervasive change at renewal, which has affected at least half of the Construction PI market by now and will continue to grow over the coming year.
However, some insurers are still considering AOC cover on a case by case basis, so again, do ensure you choose the right brokers and Lloyds brokers for their guidance.
This week, we have been assisting a roofing and scaffolding contractor get around this issue by offering them a GBP 15,000,000 limit to see if this will help them get around the GBP 5,000,000 AOC requirement and negotiating a higher limit instead of changing the limit basis.
2021 Construction PI Strategy at renewal
My advice really will be to start your renewal process early, engage with your broker at least 2 months in advance; 3 months may be a better idea, and if you are supplied with various forms, as tedious as the process may seem, complete them with time, care and detail.
Supply additional information to help add value to your proposal such as - CV's, T&C's, Risk Management procedures in place, how you mitigate risk, details on your client base, how you select sub-contractors, and as much information as you can, to present your business in a good manner.
The webinar was very informative. We have created an information leaflet for you which contains all the information provided by Caytons, download now.
If anyone has any questions, you know where we are, so please do get in touch.
Tel: +44(0)207 8469010