OPI NION
Professional indem nity insurance: Nav ig atin g th r o u g h th e s to rm GRAEME TINNEY, CEO, Griffiths & Armour Europe DAC, outlines the conditions within the professional indemnity insurance market and what firms should be considering in advance of their 2021 renewal.
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Graeme Tinney, CEO, Griff iths & Armour Europe DAC.
any firms have reported difficulties in sourcing professional indemnity (PI) insurance. We’ve frequently spoken about the insurance market cycle and the specific challenges for construction PI. When the market is well capitalised, insurance cover is readily available, but as capital drains away, there can be a shortage of supply with no concurrent reduction in demand. 2020 saw the worst market contraction for over 20 years, and I don’t think we can over-emphasise the impact that has had on consultants and contractors. Premiums are certainly increasing, but perhaps even more significantly, we are also regularly encountering firms who have been unable to source insurance protection or to maintain the specification of cover they previously held. Therefore, there is the prospect that some firms may now be operating without cover, and that has much broader implications for employers and other members of the design and construction team.
DEMAND AND SUPPLY
The challenges firms trying to source PI insurance face are down to the issue of demand and supply. There simply is not enough capacity within the PI market to deal with the volume or scale of demand, whether it’s the number of firms seeking insurance or the amount of cover they are looking to hold. Those insurers remaining in the market are also subject to increased internal scrutiny, which is reflected in the: • Number and percentage of risks they are able to underwrite • Limits of indemnity they are in a position to support • Levels of premium they are required to charge • Restrictions in cover they are seeking (or are required) to impose • Amount of risk (by way of Policy Excess) they require policyholders to retain. While the local market has recently seen the arrival of some new capital, capacity problems seem set to continue, and firms should be prepared for the fact that their PI renewal may prove to be their most difficult
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negotiation in 2021.
A GLOBAL ISSUE
It should be noted that these challenges are not particular to construction or indeed Ireland. Many of these issues are global and as a subset of the broader PI market, construction PI has always presented a particular set of challenges. Liabilities are notoriously long-tail, and quite often, a very small number of (large) claims can determine the performance of an insurer’s portfolio or the market as a whole. This is not peculiar to Ireland, but there is increased volatility, given the relative scale of the local market, the impact of larger claims and the risk of aggregation, where insurers may be insuring several parties on the same project. Historically, Ireland has also been reliant upon UK insurers to provide capacity. Brexit and the removal of “passporting” rights has presented some challenges and a further reduction in supply, but we also need to look at underlying causes. Sometimes Ireland is seen by insurers as “a difficult place to do business”. This can be attributed to: • The time and costs associated with defending claims • The potential for multi-party actions • The legacy of the “Celtic Tiger” years, etc. Added to that is a perceived “risk dumping” mentality, with certain employers seemingly determined to force unreasonable levels of risk down the supply chain. Ultimately, that feeds into a negative perception of the liability landscape within construction, at a time in the insurance cycle when it is in the interests of all parties to be creating conditions that encourage insurer appetite.
ADDRESSING THE ISSUES
People will be familiar with the broader actions being taken by the government around insurance reform. I am also encouraged by some of the conversations that are now taking place around public sector procurement. But what we need is very clear action to address the risk-versus-reward imbalance. It is something construction industry bodies have been pushing for, and I am hopeful that we will begin to see the introduction of
