The article below, by Tom Malcolm, Head of UK Broking at New Dawn Risk, was originally published in Insurance Day in January 2021.
The confidence of insurers in building regulations as a protection against large-scale claims was undermined by the failings the Grenfell Tower fire investigation uncovered.
While all professional indemnity insurance has faced a hardening market during 2020, last year the sub-category of architect’s professional indemnity saw the culmination of four years of tumult, resulting in immense challenges for architects, their brokers and insurers.
The difficulties of renewing and maintaining adequate professional indemnity insurance for architects has caused industry uproar and a swathe of negative publicity within that professional community. The Royal institution of British Architects (Riba) has called on the Ministry of Justice to review the situation but, as yet, no solution has been found.
The problem began with the 2017 Grenfell Tower fire. The tragedy and subsequent Hackitt Report called into question the safety of accepted design and building practices for high-rise buildings, including the use of many types of common cladding, fire safety management and the principles and responsibility for the sign-off of any building as being “safe”. What this brought to the fore were a number of systemic issues with the UK’s building regulations regime.
Tearing up the rulebook
Previously, any architect’s insurer could rely on the standards and efficacy of all architects’ work being guaranteed by adherence to building regulations, but the confidence of insurers in this as a protection against large-scale claims was undermined by the failings the Grenfell Tower tragedy uncovered, including a lack of any clarity as to who was ultimately responsible for a building’s safety.
Since 2017, that uncertainty, coupled with the impact of many years of underpriced policies and combined with multiple claims post-Grenfell, has seen many insurers withdrawing from the professional indemnity market altogether. This has caused demand to far outstrip supply, especially following the Lloyd’s review of underperforming syndicates in 2018, which further increased insurer exits from the segment as they looked to focus on more profitable lines of business.
In early 2020, there were government moves afoot to rewrite the UK’s buildings regulations regime to help improve the situation, but Covid-19 has compounded the market’s issues by drawing governmental attention elsewhere, leaving unresolved issues and resulting in continued uncertainty.
Much of the impact of all of this has been price-related, with subsequent negative publicity for insurers attached. In May 2020, Architects’ Journal highlighted professional indemnity renewal prices rises of up to 800% and campaigned for government support on this issue for the industry.
By October Riba had issued a further statement, detailing its concerns about the significant restrictions of cover that had begun to be common. During the autumn 2020 renewals, it was reported fire protection was excluded from almost all available architect’s professional indemnity policies.
Insurers have also put strict restrictions on “any one claim” limits; as well as excluding any buildings with aluminium composite material cladding from their cover – a significant restriction for commercial architects.
Restrictions in cover also limit the types of work architects can carry out (for example basements, swimming pools, anything firerelated), meaning some bread-and-butter project types are becoming close to uninsurable.
The Architects Registration Board (ARB) head of professional standards, Simon Howard, recently spoke to Architects’ Journal about the difficulties architects were experiencing in acquiring adequate insurance at an affordable price. He suggested these could prevent some firms operating, saying: “No architect should purchase a professional indemnity policy that fails to provide them with adequate cover for the work they do – and that includes fire safety cover. It is clear that if a firm is employed as a fire safety consultant and the policy excludes these activities, then the policy isn’t fit for purpose.”
The virtually universal restriction on protection for fire safety and strategy in professional indemnity insurance policies issued to architects has led to mistrust of insurers, while insurers have been obliged to take defensive action in response to brokers seeking quickly to “block notify” all projects that may in the future face a challenge to their fire strategy. The ultimate outcome in some cases, depending on the breadth of the fire safety exclusion, has been some firms have had to cease practising.
No quick resolution
Looking ahead to 2021, it seems unlikely any of these problems will be quickly resolved. Architects are heavily exposed to the vagaries of the economy. If GDP falls just 1 %, it .is normal to see a contraction in the architectural market of up to 12%, as large projects are taken off-stream by developers until the economic environment improves. With Covid-19 looking likely to bring a much larger contraction in GDP than 1 %, insurers will, therefore, be extra cautious in the risks they are willing to underwrite this year. The insurer supply is not going to increase and, as a consequence, it is unlikely prices will stabilise in the near term, at least.
Perhaps the only solution is for all parties to work together. Riba is seriously concerned about the rising costs of professional indemnity insurance and prevalence of fire safety exclusions, which pose significant risks to architects’ practices, clients and the public.
The institute has suggested all sides, convened by Riba, should continue to engage closely, including the insurance industry, construction lawyers and other professional bodies, and put pressure on the Ministry of Housing, Communities and Local Government and the ARB to broker a solution that supports architects.
We remain sceptical such an outcome is likely and, in the meantime, look ahead to navigating another challenging year in a sector that makes the rocketfuelled directors’ and officers’ liability market seem stable and positively dull by comparison.
The original article can be viewed here