Insurance restrictions are harming the construction industry
The Construction Leadership Council (CLC) undertook an industry-wide survey between February and March 2021 which generated responses from consultants, contractors and specialists. Around half of respondents had a turnover of less than £2 million, and almost 30% had a turnover of over £10 million.
The survey revealed the majority of policyholders had restrictions in their policies relating to cladding and fire safety, including total exclusions. Almost half of the respondents had been declined insurance by three insurers or more. This will be due to exclusions written into policies including the ability to carry out remedial work, the level of excesses, and the limit of indemnity obtained for the policy period. With less than 5% of respondents having obtained a limit of indemnity over £20 million, there will be a limited pool to carry out the work with contracts which require greater coverage.
It leaves many in a position whereby they have to choose between rejecting work, or carrying it out with the risk of inadequate cover. Almost a quarter of those responding reported that they have had to change the nature of their work due to this 'inadequate' protection.
At the same time, the Construction Industry Council (CIC) has recommended architects use specialist brokers, which can tap into market knowledge to obtain the most appropriate level of cover. This follows an insurance broker's findings that 38% of professional indemnity claims in 2020 were made against architects, despite architects making up only 6% of the market. This will almost certainly be a consequence of the Grenfell tragedy, and external wall systems being investigated ever since.
Section 8 of the Architects Code: Standards of Professional Conduct and Practice provides that architects remain expected to have adequate and appropriate professional indemnity insurance cover. The Architects Registration Board sets the recommended minimum level of cover at £250,000. The outcome of the Government's consultation on proposed amendments to the Architects Act 1997, which ran until the end of January 2021, will be considered against these latest findings.
It is expected that architects will continue to strive to meet the minimum requirements, but will remain particularly exposed where projects contain design failures with no recourse to main contractors.
This article was authored by Dan Preston, Partner and Head of the Construction and Projects team in Fieldfisher's London office