‘Supercharged’ construction PI rate rises risk forcing some firms out of business, warns Mactavish

Rising construction professional indemnity (PI) premiums in the UK could become financially unviable for some companies and force them out of business, warns Mactavish. It said that PI construction insurance premiums are likely to continue rising “dramatically” over the next few months, with buyers also facing growing coverage restrictions. Mactavish explained that there has been a dramatic jump in construction PI rates and contraction of cover since 2018, which has now been “supercharged” by Covid-19. It said that capacity in the UK construction PI market has roughly halved over the past 18 months as insurers refused to underwrite the risk. In January, the UK’s Civil Engineering Contractors’ Association reported that 92% of contractors had experienced substantially increased PI premiums. “These price hikes are now being further provoked by the Covid-19 pandemic which has caused billions of pounds in claims losses and damage to insurers’ investment portfolios. This huge loss of capital and revenue coming on top of historic losses will inevitably invoke increased underwriting scrutiny; if insurers choose to take on construction PI risks at all they will do so for a hefty price and with more restrictive terms, particularly as Lloyd’s is retaining Decile 10 reviews for 2020,” said Mactavish. The firm, which describes itself as a specialist outsourced insurance buyer and claims resolution expert, therefore calls on more construction PI insurance buyers to consider using Written Lines Tenders (WLTs) to inject “much-needed competition and a simplified focus on the two things that matter most: policy reliability and cost”. WLTs are competitive bids in which two or more brokers are run against each other, each with their own preferred insurers and solutions. Mactavish argues that this approach helps ensure that no matter how much a broker stands to make from placing a risk with a given carrier, it still achieves the best possible price and cover. Mactavish said it has been able to achieve 20% to 50% savings in recent tenders against broker estimates, while also making major improvements to the policy wording. Bruce Hepburn, CEO of Mactavish, said: “Many construction firms only use one broker to secure their insurance cover, but as highlighted in our recent Broker Conflicts Report, up to 78% of some brokers’ income is derived from insurers, rather than insurance buyers - and much of this is linked to premiums. This means that there is less incentive for brokers to work harder to acquire construction PI coverage at lower rates. As PI coverage becomes more expensive, causing hard-pressed construction margins to decrease, some brokers may in fact increase their profits. “Policyholders don’t need to accept either price hikes or poor broker representation. We encourage all our clients to think carefully about how they market and present their risks as, even in a hard market, this can make all the difference. We also recommend that buyers who aren’t being given viable solutions by their brokers run Written Lines Tenders (WLTs) to inject some greater competition around who wins their business,” he added.

‘Supercharged’ construction PI rate rises risk forcing some firms out of business, warns Mactavish

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