Current trends in professional indemnity insurance for construction professionals
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Against a backdrop of a rapidly changing insurance market, construction professionals have been facing mounting premiums and reduced options for Professional Indemnity (PI) coverage.
In the first instalment of a series of webinars focused on the construction industry, RDJ Partners Finola McCarthy and Alison Bearpark were joined by guest speaker Graeme Tinney, Professional Risks Director at Griffiths & Armour to discuss the current issues facing construction professionals seeking PI insurance cover in a tightening market.
Here are some key takeaways from that discussion:
- From a PI Insurance (PII) perspective, 2021 has been an extraordinary year. We are beyond the point of this being a normal stage in the market cycle to a situation where PII is now the subject of media headlines and Oireachtas committee meetings. All of this points to a fundamental problem in the local liability landscape.
- Insurers have shared concerns but the insurance market is not homogeneous and there will be differences in how individual insurers are responding to the challenges. At the same time, there is a feeling that we have lost sight of what PII is intended to provide for and at times, it seems to be viewed as a ‘catch-all’ solution for project risk.
- Addressing the risk -v- reward imbalance within the construction sector will be key to encouraging insurer appetite and delivering sustainable competition within the local market. That is going to require a move away from a ‘risk dumping’ mentality to a fairer allocation of risk and issues such as contractual liability and the impact of the Civil Liability Act will be central to that.
- Construction contracts are becoming more prescriptive with respect to design professionals obligations where the contracted level of PII is no longer available at commercially reasonable rates. There is also greater scrutiny on clauses limiting a design professional’s liability, in particular net contribution clauses and financial caps on liability.
- The gap between the liabilities being imposed under contract and what is covered under PII is broadening. This not only creates risks for consultants and contractors but also questions the strategy of employers seeking to transfer risk to parties who cannot absorb or insure the potential exposure. There is greater scrutiny and push back on any obligations in construction contracts which seek to expand a design professional’s standard of care beyond reasonable skill and care.
- The expectation is that the market will continue to see premium increases into next year but at a more modest level. The conversation on coverage issues (such as “each and every claim” v “in the aggregate” and separate sub-limits or exclusions for fire safety notifications) will continue.
- It is important for design professionals to commence the PII renewal process early and provide insurers with a detailed outline of its risk profile. Where coverage issues do arise, design professionals are advised to discuss the coverage issues and any alternative options that are available with the client. Clients and other stakeholders are urged to remain flexible and consider what other options may be available (such as project insurance) when assessing any exposure as a result of reduced PII cover.