Why did PII premiums rise?

In recent years, building safety concerns have significantly affected the construction industry. This has impacted the insurance market too – brokers will know all too well that professional indemnity insurance (PII) premiums have notably increased in recent years. So, what exactly caused the PII market to harden? 

Building safety under scrutiny

After the Grenfell Tower tragedy in 2017, attention understandably turned to the safety of buildings. More issues were discovered, leading to more claims – especially following the retrospective extension of the limitation period to bring a claim under the Defective Premises Act 1972. The extension (from 6 years to 30 years) offered increased protection to homeowners and residents when claiming against original contractors for defects, but inevitably impacted insurers’ loss ratios.

According to a report by CMS, 12 out of the 13 highest-value claims made since 2022 were related to cladding and fire safety concerns. Also, the average claim amount rose from under £3 million in 2021 to over £6.5 million in 2022, with some individual claims exceeding £25 million.

Impact on premiums  

The increase in claims caused premiums to rise, with limited capacity and restricted coverage causing challenges between 2017-2021. Promisingly, the PII market began to stabilise from 2022 onwards. Capacity has slowly returned, particularly for main contractors, developers, and the middle market. However, some insurers are still imposing exclusions or restrictions on claims related to fire safety and cladding, highlighting ongoing caution within the industry. 

Insurers more confident 

Recent legislation changes may have helped insurers to feel more confident when taking on construction-related risks. One key development is the dutyholder and competency regime, which came into force in 2023 as part of the Building Safety Act 2022. It is applicable to most construction projects and ensures that the client, designers and contractors take responsibility for ensuring their buildings comply with regulations.  By setting higher standards and clearer responsibilities, this regime aims to prevent future defects and, ultimately, reduce risk for all involved – including insurers.

Talk to us

As contractors continue to navigate changes to the building safety landscape, it is vital that they are doing all they can to mitigate risk, including having the appropriate insurance. Focus can help brokers source relevant cover for their construction clients – just get in touch on 0345 345 4511 or email sales@focus-insurance.com.