Post-Grenfell laws may spark PI insurance pullback, warns broker
Insurers could pull professional indemnity (PI) insurance coverage again if faced with an influx of claims under new post-Grenfell laws, a broker has warned.
Speaking at an event hosted by the Chartered Institute of Building on Wednesday (11 September), Miller Insurance construction PI specialist Paddy Synnott said that although PI premiums had come down since their post-Grenfell highs , broader contractor liability for construction defects could cause another sharp retraction in coverage.
Under the 2022 Building Safety Act, if the firm that caused a safety defect is no longer in operation, associated companies may become liable. The act also extended liability for safety defects after initial handover, from six years to 30 years.
Synnott said: “Insurers will be certainly looking at the work that’s been done by their clients, and looking much further back and being a lot more worried about what potentially could come out of the woodwork.”
He warned of an “instantaneous” reaction if a large number of claims came through, adding that the pullback by insurers after the 2017 Grenfell Tower fire “shows that sort of snap judgement, as they try to understand how large their total combined loss in a certain area might be”.
He added: “There probably hasn’t yet been the frequency or severity of losses from Building Safety Act issues to cause insurers major pricing concerns at this point.
“I think there is a cautious approach that is being taken by insurers to try and understand the risks that are associated, but until they see those claims manifesting themselves, it’s very difficult for them to.”
PI costs soared after the Grenfell tragedy, as providers pulled coverage around fire safety, leaving fewer players in the market.
That impacted on construction firms. In 2022, the Construction Leadership Council revealed in its second annual PI insurance survey that 24 per cent of respondents had lost work , primarily due to restrictions on the level of their cover relating to cladding or fire safety.
Synnott pointed to a 2018 review from Lloyd’s of London that concluded construction PI insurance claims far outstripped premiums.
Speaking earlier in the day, HCR Law partner Colin Jones said insurers would be “mightily alarmed” by obligations under the new dutyholder regime, which came into force last October. Among the principal contractor’s duties is an obligation to ensure others on the project coordinate to ensure the building complies with building regulations.
Jones said: “What does that actually mean in practice? Is someone going to be expected to second-guess errors?”
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