Construction PI rates increasing post Grenfell and historic construction PI losses
Construction PI cover may be increasingly expensive and more difficult to obtain as a result of the Grenfell disaster and historic losses in the construction PI market, with insurers requiring increased information and imposing stricter policy terms and conditions. That was one of the main conclusions of a meeting of risk managers in the construction sector, which is to form the basis of a new Airmic Special Interest Group (SIG).
The gathering, which took place at the successful Construction Risk conference managed by Commercial Risk Europe, attracted more than twenty Airmic members from the UK and Europe.
Juliette Pettit of AIG, who ran the session, mapped out how insurers have reacted to Grenfell. Many have needed to reduce capacity or added additional limitations to claims involving cladding, whilst others have left the market altogether. Although no claims have yet been paid for Grenfell, insurers have had to reserve heavily and some regard their Construction PI portfolios as unprofitable.
Those left in the market are having to manage their portfolios carefully and are being highly selective in the risks they accept. To obtain cover going forward, companies must demonstrate a detailed understanding of their cladding, insulation or facade risk and that risk management is embedded within their companies. Insurance managers need to communicate with designers, owners and users of the building to understand the nature of any cladding, previous losses and risk improvement plans and how construction standards have been adopted. Questions will be particularly focussed on properties over 18 stories.
The risk managers present agreed with Pettit's view and took the time to share their experiences of the wealth of information they are now being asked to provide when purchasing PI cover for. There was some concern from risk managers that certain insurers have overreacted in terms of the underwriting policy, especially where only a few years ago cladding was not considered to present a high risk. Pettit commented that it is not just Grenfell that has caused the construction PI market to retract. For many years some insurers have been charging inadequate premiums in this class compared to the claims which have been paid and as a result their portfolios are unable to justify continuing in this class.
Insurance managers discussed their internal challenges too, including how demonstrating to their organisations that simply complying with construction and property standards does not always ensure resilience.
Future construction SIG meetings
After the success of this first meeting Airmic plans to hold two construction SIGs during 2019, and the group spent some time discussing other possible topics.
These include division of risk management responsibility between contractors and owners, issues arising from green initiatives, technological developments, the increasing complexity of supply chains as contractors become more specialised, consolidation of the market and reduced capacity, the need for more long-term insurance agreements to reflect the length of construction projects and employee wellness.
For more information about the Construction Special Interest Group or to make suggestions for future meetings, please contact georgina.wainwright@airmic.com