PII Market update - December 2020

Update on the Professional indemnity insurance market for surveyors

The hardened professional indemnity insurance (PII) market has been well documented and continues to be a challenge for RICS regulated firms. Current market conditions have resulted in a reduction in supply of PII for regulated firms, increased use of exclusions (particularly relating to fire safety exposure), alongside significant increases in premiums being paid.

Over the past 18 months, RICS has undertaken a number of steps to maintain a PII market for surveyors and insure the continued availability of PII. This has included amending the minimum policy wording to provide insurers greater flexibility to writer terms and making changes to the Assigned Risks Pool (ARP) to allow it to provide more flexible and market appropriate terms.

PII continues to be a priority for RICS, and we are currently have a number of workstreams underway to support the development of a sustainable PII market for regulated firms. This includes:

• Policy and guidance – Supporting the profession through the difficult market conditions remains a priority. We recently consulted on further changes to the Assigned Risks Pool  (ARP) to come into effect in April 2021 and will shortly be publishing a revised Risk, Liability and Insurance Guidance Note to support firms to improve their management of risks and liabilities.
• Advocacy - We continue to work with Government, the insurance industry and other built environment stakeholders, to explore innovative solutions to current market conditions and continuing to call on Government intervention in the market, particularly in relation to fire safety.
• Data collection – Following the recent request for information, we will continue to improve our insight and understanding of the PI market through improved data collection, allowing for comparisons over time.
• Review of our global PII requirements – RICS’ independent Standards and Regulation Board (SRB) has committed to undertaking a review of RICS’ global PII requirements. This will focus on the UK where additional requirements are in place, but also look at other litigious markets, such as Australia and North America.

Data collection

As part of our work to improve our data collection, earlier in the year we undertook an anonymous request for information about RICS regulated firms’ PII.

We are grateful to all those that participated in and responded to the anonymous request for PII information undertaken earlier in the year. We received over 650 responses form regulated firms, providing us with useful insight on PII cover, firm exposure and claims history. The data collected provides invaluable insight into the current market, providing an evidence base for RICS to use to ensure the continued availability of adequate and appropriate PII from insurers and to work with Government to find solutions.

This is the first time that we have collected PII data from regulated firms. We will use this as a baseline for future data collection, allowing us to track developments in the PII market over time.

Insurers

Over 35 insurers are listed by RICS to underwrite professional indemnity policies of RICS regulated firms – a full list of the insurers is available here. The survey responses provided useful insight into which insurers were underwriting the majority of RICS members.

The top five insurers are:

• RSA Insurance
• AXA Insurance
• Hiscox Insurance Company
• Zurich Insurance PLC
• HCC International Insurance Company (Tokio Marine HCC)

Premiums

We also asked firms what their PII premium was in their last renewal cycle. The table below outlines the average premium by firm turnover.

RICS listed insurer data shows that the net premium written (NPW - the total insurance premiums written) by RICS listed insurers for the period 01 January 2019 to 31 December 2019 was £43,579,926 up from £37,485,199 in 2018, a 15 per cent increase.

While the NPW written increased significantly in 2019, the graph below shows that this is still below the high NPWs seen between 2003-2009, suggesting that premiums may have further to rise. Anecdotal evidence from regulated firms suggests that this is the case in 2020, with many firms continuing to see increase in their premiums.

Claims

A total of 46 firms indicated that they had claims made against them since 2016, with a total of 81 claims. These claims amount to a total of £3.3m being paid out in damages, with £405k in defence costs. Of the claims identified there was over £900k in damages and defence costs outstanding.

The top five areas of practice where claims were received are:

• Survey (no valuation)
• Construction (design, architectural, engineering)
• Property management (residential)
• Survey for secured lending (commercial)
• Property management (commercial)

363 regulated firms indicated that no claims had been made against them, with the remaining respondents opting not to complete the question.

Fire safety and External Wall Systems (EWS)

Out of the respondents, a total of 25 firms indicated that they undertook fire safety work. Furthermore, of these firms, only 13 indicated that they were completing EWS1 forms – underlining the difficulty that firms are having in obtaining cover for this work.

Of the firms that undertook EWS1 work, we also asked the question whether they had discussed this with their PI insurer. While most indicated that they had done, some firms indicated that they had not discussed undertaking this work with their insurer.

It is mandatory that all RICS regulated firms wishing to complete EWS1 forms discuss this with their insurer – failure to do so will mean professionals will not be covered for this work.

RICS is currently reviewing the EWS1 form and will be launching a revised form, a new fire safety training programme for Chartered Building Surveyors and Building Controllers in early 2021. Alongside this, additional guidance will be published for valuers relying on the EWS1 form.