PI insurance rates: Talk is cheap

In May, we predicted that professional indemnity insurance (PI) rates across the construction industry would rise as insurers sought to ameliorate the inevitable increase in claims.

Surveyors who derive a significant proportion of their fee income from commercial and residential valuations will now be experiencing significant price increases on their PI – possibly as much as 50% at next renewal – as well as a lengthier renewal process and less choice of insurer.

The price increases are proving crippling for some; the recent collapse of Lexicon Surveying Services was attributed by the administrator, Vantis, primarily to increased PI premiums.

Insurers’ greatest fear at present is their exposure to mortgage fraud. Fraudulent transactions tend to contain certain recurring characteristics, such as portfolio valuations with the same profile of property, valuations carried out for lenders with an appetite for subprime mortgages, work that is awarded under a subcontract by a panel manager, instructions that are direct from an intermediary, developer-led sales, or those with a high percentage of valuations for buy-to-let mortgages. Where these are evident, insurers will want to ask more questions than usual, making the underwriting process far more onerous.

So start renewal discussions early, at least two months before expiry. Several insurers have withdrawn from writing these particular areas of surveyors’ PI altogether, so surveyors have even less choice of insurer at renewal.

Where possible, try to meet the insurer suggested by your broker and provide them with an executive summary of your internal procedures. This will demonstrate that you understand the risks insurers are concerned about and that reasonable steps are being taken to mitigate them. The proposal form is a one-dimensional document that does not reflect the individual characteristics of the firm; the better an insurer understands your business and attitude to risk management, the more appropriate will be your policy.

If you have made a claim in the past 12 months, then following these procedures with your insurer or broker will be all the more important. In addition, analyse each situation that gave rise to the claim and be objective. Determine what, if anything, could have been done to prevent the claim arising. Where appropriate, incorporate steps into your internal procedures to prevent a recurrence.

Also, be aware that as well as increasing the premiums, some insurers will be restricting cover in certain areas. In today’s environment it is not uncommon for insurers to include a condition in policies that automatically cancels the insurance contract when a company becomes insolvent, leaving a company uninsured at a critical time. This should not be the case for surveyors because the minimum insurance terms stipulated by the RICS do not allow it, but it is apparent that the terms are not always being adhered to. It is imperative, therefore, that you check the terms and conditions of your own PI policy carefully and that of any subcontractors that you are responsible for.

If you have any concerns about your PI insurance, consult a specialist construction PI broker.