State of the Insurance Market for Building Surveyors

Recent experience indicates that the market for professional indemnity (PI) insurance for building surveyors & building inspectors is showing signs of hardening; evidenced by increasing premiums and a change in risk selection criteria by several insurers.

 

Since approximately 2004 the PI insurance market has been extremely competitive, characterised by a high number of insurers competing for a limited number of clients. Capital providers invested heavily into insurance markets attracted by the prospect of high returns. The result of this has been a relatively 'soft' market with competitive premiums and generous cover under the policies offered by insurers. Therefore adequate and affordable PI insurance has been available to most building surveyors who obtain their policy via a specialist PI insurance broker.

 

Our experience in recent times has seen a shift in the state of play. Whilst the market is still competitive for firms with a benign claims history (i.e. those that have not experienced any significant PI insurance claims), those building surveyors that have called on their insurer to defend or settle a claim may find it increasingly more challenging to obtain affordable PI insurance.

 

Whilst there are numerous local and international insurers that include building surveyors in their underwriting appetite, in recent months we have been advised of one insurer withdrawing from the building surveyors’ market and one other insurer advising of some significant premium increases in the coming year. These insurers have both found that claims payments for both legal costs and claims settlements have outweighed the premium collected for the profession as a whole. Such results are not consistent with a profitable enterprise, hence some insurers have cut their losses and exited the market, or alternatively have become more selective in the risks they are willing to cover. Therefore whilst most building surveyors in recent times have been able to benefit from low premiums in the short term, it has compromised the long term viability of the PI insurance market for building surveyors as a whole.

 

These recent developments highlight the need for an 'open market' insurance system for building surveyors. One key factor that has assisted in the development and maintenance of a viable professional indemnity insurance market for building surveyors has been the significant number of alternative insurers available to building surveyors in the event that their existing insurer declines to offer renewal terms or offers terms that are not attractive. Usually, there is at least one, if not many other insurers who have been willing to cover the business in these circumstances.

 

Despite this view, there have been promulgation of the concept of a 'blanket' or 'scheme' PI arrangement where all building surveyors are covered under the one mandated insurance policy. Such a strategy has significant risks.

 

As evidenced recently, insurers change their risk appetite quickly and if a 'scheme' arrangement were to be adopted to attempt to cater for the needs of the profession as a whole:

  • There is no flexibility for the businesses insured under the scheme
  • There is no scope to seek the most appropriate/competitive option for an individual business
  • Those building surveyors deemed as 'undesirable' have no option but to accept the potentially high premiums offered under the scheme
  • If the scheme performs poorly (i.e. high claims costs compared to the premium collected) the insurer may:
    • Increase premiums across the board
    • Remove elements of cover under the policy
    • Cease underwriting the scheme all together

Our concern is that even with the existing 'open market' system, there is risk that some building surveying firms may not be able to operate their businesses as a result of the cost of the premiums being imposed by insurers, or worse, being unable to secure cover at all.

 

Whilst it is not the first time insurers have revised their underwriting criteria for building surveyors; we believe the recent developments are having a larger impact because the shifts are coming from Lloyd's of London underwriters whom we believe provide cover to an estimated 70% of building surveyors today. Whilst Lloyd's use many different underwriting agencies in Australia to perform their day to day underwriting negotiations and claims services, there has been a consistent response from the various underwriting agencies that Lloyd's syndicates have changed their view and are taking a harder stance on building surveyors in recent times.

 

Therefore whilst every client's circumstances are different we have provided some strategies to employ to assist your business in achieving a favourable outcome in the renewal negotiations with insurers:

  • Submit the renewal paperwork to your broker as early as possible
  • Provide detailed, accurate and relevant information in your renewal documents
  • Where your business has a claims experience; implement risk management strategies to avoid recurrence (and importantly articulate these to your broker/insurer)
  • Develop documented risk management strategies
  • Use disclaimers with any advice provided
  • Have client selection criteria
  • Enter detailed discussions with your insurance broker on these, and other strategies to assist in best presenting your business

 

What BRIC are doing to ensure the long term viability of the insurance market for building surveyors:

  • Ensuring that our clients are placed with a wide variety of insurers
  • Assisting our clients in developing risk management strategies
  • Preparing detailed underwriting submissions which address insurer key underwriting criteria
  • Preparing detailed claims information on behalf of our clients to assist with renewal negotiations
  • Negotiating various policy amendments to ensure adequate cover for clients
  • Negotiating various policy amendments to address State specific insurance requirements

 

 
 

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