Editor’s Message

Professional liability and errors and omissions

Capacity issues for service providers

Arif Ghaffur, PQS

Professional Liability and Errors & Omissions Insurance is typically obtained by professional service providers either because they are required to provide this by their clients, or they seek to rely on this in the event of a claim against them that alleges ‘errors’ or ‘omissions’ on the part of service providers during the course of one’s duties or contractual obligation .

Such insurance is typically provided by insurance companies; and syndicates from which insurance brokers obtain insurances for their clients . Lloyd’s, a major insurer, recently undertook a review of the business plans of the lowest decile syndicates, and identified what had eroded their profit during the period from 2011 to 2016 .

Professional indemnity in the UK and internationally was found to result in a loss of 435 million pounds to Lloyd’s over the same period . The industry risk codes for construction and miscellaneous (often used in errors for construction professional indemnity) in this line of cover, showed a loss over the five-year study period .

Lloyd’s key objective is to ensure that the market is delivering sustainable performance but with syndicates now operating at a loss, the Lloyd’s market is reconsidering its market positioning . As a result, Lloyd’s has charged those syndicates identified as poorly performing with turning around these perennially unprofitable areas and demonstrating a realistic route back to a sustainable profit .

Further, it is understood that with 70% of the impact on claims coming from just 40% of the premium – then is reasonably easy to isolate the problem areas . This simply means that Professional Liability pricing may be on the rise as market conditions change .

I recently caught up with Barrie Ngeh, Accountant Executive of the Construction Services Group with Aon Risk Solutions . Barrie said, “The landscape for obtaining and maintaining professional indemnity, errors and omissions is rapidly changing . There is increased vigilance and pressure on premiums that may impact service providers such as Quantity Surveyors .”

Barrie also referred me to Aon’s publication titled 2018 Global Market Overview in Q3, which identified the following: 1. Ongoing losses: The construction professional liability losses sustained are both large in number and quantum, which has now made some insurers’ portfolios unsustainable . 2. Types of claims: The professional liability claims have been in the form of both damages and claims . 3. Legal costs: In the US, there is a macro view wherein it is believed that for every $1 paid by insurers, some $0 .60 relates to plaintiffs’ and defendants’ legal costs. 4. Ongoing trends: The trend regarding frequency and quantum of claims has been increasing for nearly 12 years, with no adjustments of insurers’ terms. 5. Changing market: There have been no new entrants to the construction professional liability market, with parallel consolidation following insurer mergers leading a softening in the insurance market . 6. Architects and engineers: Poor underwriting results are driving insurers’ decisions, with five insurers withdrawing from underwriting architects and engineers in the US . 7. Stable market: In Canada, the marketplace remains stable for construction professional liability, but there is growing uncertainty regarding the future of the projectspecific market . 8. Changing conditions: The market is starting to pull back with certain terms and conditions, and what used to be readily available now requires negotiation with insurers. 9. Market exit: The insurer of one large Canadian professional liability program is electing not to continue, due to its claims experience . 10. Other markets: The Middle East and Asia have lower premiums, and the main reason for this is the lack claims in these territories .

Barrie Ngeh, Accountant Executive – Construction Services Group, Aon Risk Solutions

I thank you for your support and contribution to the Construction Economist, and sincerely wish you and your families are having a wonderful spring . If you have feedback, suggestions, and of course any articles that you would like to be considered for publication, please email editor@ciqs.org.

Arif Ghaffur PQS

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