The AGS Loss Prevention Working Group last year undertook a survey of members requesting comments on their recent and current commercial, contractual and legal issues which have been affecting or have affected their organisations in the past 12 months. 17 comments were received which covered a variety of topics. One of the most significant areas of concern for responding members related to Professional Indemnity Insurance (PII).

The main concerns were regarding the requests for levels of Professional Indemnity cover which exceeded the level of risks for the work undertaken, and the difficulty some members had in obtaining insurance at an economic rate. It appears that where cover five or more years ago may have been readily obtainable at £10m for each and every claim, it now is more like £5m in the aggregate. There is a view that since the Grenfell Tower disaster previous levels of cover are no longer available in the construction industry, of which geotechnical work is a part.
Over the years the AGS has published a number of documents on Professional Indemnity Insurance which are still relevant to this issue, namely “A Client’s Guide to Professional Indemnity Insurance (2006)”, “Glossary of Useful Professional Indemnity Insurance Phrases (2014)”, “LPA 28 – The consequences of a hard insurance market on existing collateral warranties (2003)”, and “LPG 016 Checklist for Professional Indemnity Insurance (updated 2022)”. While the information in these documents can help members to navigate their way through the issues around PII, and to help them inform their clients about the purpose of PII, the main issue appears to be changes in the insurance market.

Griffiths and Armour regularly review the conditions in the insurance market. The comment below is based on the June 2024 article “What’s happening in the PI insurance market? Current conditions and long term change” from their on-line Knowledge Centre.

In the first half of 2024 the insurance market experienced a ‘levelling off’, and the outlook for the market was more positive than previously. Whilst certain sectors remain particularly challenging, and individual renewals will obviously be influenced by risk and claims profile, it feels like the market has entered a period of relative stability.

While there are fewer firms finding themselves being unable to secure insurance protection, affordability remains a real problem and the significant differences in the cover insurers are prepared to provide has left many firms, often unknowingly, carrying a higher degree of uninsured exposure. To counter this companies should tackle underlying risk by adopting a long-term, sustainable approach and being careful in balancing contractual risk and the desire to maintain work load for the business. There is experience of increased limits of indemnity required being driven by costs and inflation.

At a wider level, the introduction of the Building Safety Act in the UK creates potential uncertainty around exposures on both historic and future projects, with recurring issues such as joint and several liability, continuing to fuel a complete imbalance of risk and reward for the consultancy sector.

However, the changes G&A are now seeing in the insurance market are more about the usual ‘market cycle’ and the ebb and flow of capital than any fundamental change in underlying risk.

It is recommended that firms should start planning early for their own PI insurance renewal, and should:

• start the process 2 to 3 months in advance of renewal;
• establish clear goals and timelines at the outset;
• provide a clear overview of their practice and their approach to managing risk;
• outline lessons learned from claims or issues that have arisen in the past; and
• work closely and engage positively with their broker/insurer.

David Hutchinson
Loss Prevention Working Group