Insurance problems threaten the UK’s future

Insurance has never felt cheap to companies in the construction sector, although many or most of them never took the sort of risk management measures highlighted in our regular insurance articles, so to a large extent often had only themselves to blame if they were paying higher premiums than they need have.

Now however it turns out that we have been living in some sort of golden age for insurance, when premiums were in fact relatively low, and sometimes falling. The golden age is well and truly over now, and companies of all sizes across the industry are reeling under the scale of increases they are seeing. And there is probably more to come.

Premiums increases that we have already seen could be enough to put adequate cover out of the reach of many. Passing any increased cost on to clients is always difficult in such a competitive market as construction; many clients will be seeing insurance costs soar in their own businesses, but that won’t make them any more sympathetic to pleas for help. Which could be shortsighted, because if contractors and others can’t afford insurance they dare not trade. There is also the problem of a declining number of insurers prepared to take construction risks at all, which raises the threat of being unable to obtain any insurance cover.

The main culprits to blame for rises have been Grenfell and Covid, and both are having a huge and ongoing impact. But as we reported last year, premiums had been low for some years – some said unsustainably low – so this was bound to change sometime. Technical changes in the Lloyd’s insurance market have played a key role in making life harder for companies needing Professional Indemnity cover in particular. The Grenfell Tower tragedy led insurers to become more cautious about the risks they would cover under PI policies. New policies have introduced significant exclusions.

Lloyd’s syndicates had slipped into unprofitability on the PI part of their business, which prompted Lloyd’s to institute what they called Decile 10 reviews, which forced syndicates to identify the worst performing 10% of their businesses. Plans had to be produced to eliminate these loss making activities or the cover would be placed into ‘run-off’, effectively removing cover from the market. PI was revealed to be the second worst performing part of the business for syndicates and had been for some years.

Capacity in the PI market was quickly halved as a result. Premiums soared. The amount of insurance provided under particular policies has been limited and exclusions have been widened. Then Covid hit the industry. Now the insurance issue is threatening to be a barrier to recovery from the pandemic.

The Construction Leadership Council (CLC) has launched a survey on the costs and policy exclusions that the industry is experiencing when renewing their PI insurance cover (see News). CLC reports four fold increases in policy costs, with some companies unable to get cover at all.

The CLC plans to use the findings to approach the UK Government and insurers to find ways to alleviate the problems, which the industry has to support. The government and the insurance industry also have to show their support – without something being done the Prime Minister’s plans to ‘build, build, build’ the UK’s way towards a brighter post Covid and post Brexit future are on very shaky foundations.

Nick Barrett