What is Professional Indemnity Insurance?
Professional Indemnity insurance protects businesses against claims from third parties due to perceived poor performance, errors or defamation. All businesses which provide advice or services should do so with reasonable skill and care, and therefore will need a degree of professional indemnity cover.
Professional indemnity insurance will cover the cost of rectifying the issue, legal fees, compensation payouts, and will go some way to covering business interruption or loss of income as a result of a claim.
Romero Insurance Brokers’ professional indemnity insurance is essential for construction business as it covers not only errors in design, but also specification, supervision, project management, feasibility study, technical calculations and surveying.
What professional indemnity insurance cover needs to be distinctly differentiated to that which public liability insurance does. If a structure were to fall, with no sign of negligence and all specifications met, it would be down to a deficiency in design. This would therefore result in a professional indemnity claim. However if part of the structure were to fail due to a workmanship error or manufacturing defect, then costs would be covered by public liability. This distinction needs to be made clearly and accurately, which is why an experienced broker is so important.
Do construction companies need professional indemnity insurance?
Construction companies that offer a design service must have professional indemnity insurance. Many businesses in the sector offer advice on construction, and will ordinarily both supply and build. Professional liability insurance will therefore be essential to protect the businesses finances and reputation in the event of a claim.
A contract or warranty signed in the last 12 years will require professional indemnity cover – The period for which businesses are legally liable is typically 12 years post completion. Construction businesses should ensure their insurance policy is up to date; renewal is critical as errors in the design may not become apparent until years after the construction finishes.
We know, in many cases, remedying the issues found in the design post completion date can often surpass the cost of the original design service. Professional indemnity insurance will cover the cost of this, therefore it’s one of the main policies construction companies require.
Professional indemnity statistics
The estimated premium value of the UK market is £3 billion
The estimated number of UK policyholders is £1.5 million
The Construction and design profession takes up the largest percentage of the professional indemnity market, valued at £600 million
A large negligence claim was filed in 2013, it cost the business £1.6 billion
Why is Professional Liability insurance difficult to find?
For a professional indemnity claim, most policy details are underwritten on a ‘claims made’ basis. This means the insurer currently insuring the negligent company responds to any claims, even if the claim is from years prior where that same insurer was not in force at the time. For underwriters, this means they are potentially taking the risk of the construction company’s actions over the past 12 years. This is different to other policies, such as public liability, where the insurer only covers the specific period for which they provide.
The recent Building Safety Act extended the Defective Premises Act, increasing the time period for retrospective compensation claims, from 6, to 30 years. The liability period will also be extended to 15 years.
What information do insurers need from construction companies to offer professional indemnity insurance?
Construction companies need to provide their brokers with all the relevant information, including:
- What your business does
- What services or advice you regularly provide
- What processes you have in place to minimise the likelihood of professional errors
- How you work to limit liabilities
- Your claims history
The extent of detail that goes into the information you provide can have positive consequences. The more detailed this information is, the more likely your cover will be accepted, and possibly the lower the premium.
How to get a better professional indemnity premium in a hard market?
It’s widely accepted that the insurance market runs in a cycle between soft and hard. In the current hard market, insurers are more restrictive in their cover and premiums can be higher. This is due to insurers withdrawing from the market, reducing competition for policies in a harsh economy. Also, considerations include the Grenfell Tower fire, which specifically affected insurance in the construction sector.
Adding COVID-19 on top, it’s meant professional indemnity insurance has become more onerous and elusive. To receive improved terms and lowered premiums, construction companies will need to prove they are a reputable, reliable, and risk averse operator.
Working with an experienced broker is the best way to reduce premiums and improve terms. We help guide you on what information to provide insurers, recommending you demonstrate a list of measures and a detailed record of your claims history.
Demonstrating good risk management can include:
- Show written procedures for designs
- Show the contract review processes
- Show documents you rely upon when designing
- Identify contracts that are without a design element
- Identify the sectors you work within – residential, commercial, industrial, public or private sector; this will reflect the level of risk
- Evidence of agreements with external design consultants, and evidence of their own PI insurance.
If you have had claims made against you in the past, be open and honest with your broker. We will need details of the incident, the ruling, and any measures taken to prevent recurrence. Existing policies may contain conditions, confirming your obligation to report a claim.
Professional indemnity claims often occur months or even years after the work was completed. Therefore it is critical construction companies keep accurate and detailed records on hand, as they will be vital to your defence. Demonstrating good risk management and offering your claims history will be looked favourably on by insurers, as will your ability to maintain good records. In the long run, this may possibly help to improve your terms and limits. Furthermore, brokers will need this information well in advance of any renewal or claim deadline, hence having all the information prepared is appreciated.
Why is an independent broker the best way to get professional indemnity insurance?
An independent insurance broker offers a range of benefits, and will find the most suitable for your construction company. Independent brokers work with operators, taking the time to learn their specific needs and requirements. An independent broker can give you the time and attention that conglomerates can not.
However, there are many independent brokers without experience in the professional indemnity market. They may not have the resources to cater to the size and complexity of a construction company, and won’t have the relationships with insurers inplace to guarantee the best deals, despite what they may say. That’s why clients choose Romero Insurance Brokers.
At Romero Insurance Brokers we have 25 years of experience in the market, seated at the top table, leading the industry and able to offer the best policy arrangements. We also have a dedicated team of account handlers able to take your call for any and every reason. Our in-house claims team are experts in professional indemnity law, able to take your hand from the moment the claim is made to the moments its resolved and beyond.
Romero Insurance Brokers will explain measures you can take to avoid risk of a PI claim, and present a guideline of what information needs to be recorded and updated. It’s true that the foreseeable future for certain claims types is set to be very difficult; companies are no better protected than when they are in partnership with an independent broker. We are the most dedicated broker in the UK, which is why we have won the Insurance Times award for Best Independent Broker three times.
Wait for a claim and it might be too late – Contact Romero Insurance Brokers today to get your insurance in order.
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