02/08/2021
Construction Professional Indemnity Market
Contributing factors
For many years previously, overcapacity in the PI construction market resulted in very broad coverage and premium reductions; consequently insurers and brokers had to battle to turn a profit.
Since the market has moved, those insurers who haven’t completely exited these lines have instead reduced appetite, increased premiums and excesses or looked to focus on larger layered programmes, whilst brokers have struggled to place certain risks.
The 2017 Grenfell fire has often been cited as a key cause, although opinion is divided on whether this was merely a catalyst for an already declining market. The tragedy certainly increased awareness around fire safety and heightened concerns surrounding the use of cladding, particularly Aluminium Composite Materials (ACMs) and the ensuing potential for some extremely expensive claims.
In fact, PI construction claims have generally increased due to more large-scale and complex construction projects which inevitably carry higher risk. As a result, insurers are offering brokers lower limits and are less inclined to negotiate terms.
Insolvencies in the construction industry have also exacerbated the issue. According to Q1 2019 government statistics, the construction industry was the sector with the highest number of new company insolvencies with 3,013.
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This follows the financial collapse of British construction services company Carillion in January 2018, which had debts of up to £1.5bn, partly due to taking on too many risky contracts. Supply chains were subsequently impacted, creating disruption across the UK construction industry and making insurers nervous about construction firms’ financial resilience.
Uncertainty in the current political climate is not helping the situation, with Brexit threatening the possibility of a recession and the Covid-19 pandemic causing widespread anxiety and disruption. Cautious attitudes are even more prevalent during times of economic downturn which translates to underwriters becoming more selective about the risks they accept. This may include making changes to the basis of cover, with additional restrictions and/or higher excesses.
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