The construction industry could see a significant increase in premiums for professional indemnity insurance as a number of insurers scale back capacity or withdraw from the sector altogether. Design and construct (D&C) contractors have benefitted from an abundance of affordable PI insurance for around 15 years, resulting in low premiums and wide coverage.

However, the construction team at broker and risk consultant JLT Specialty, is warning that a number of challenges to the market - including uncertainty in relation to cladding systems as a result of the Grenfell fire and greater regulatory scrutiny - have resulted in an increasing number of insurers scaling back on capacity or withdrawing from the PI insurance market entirely.

With many contractors preparing to embark on their 2019 renewal process, this reduction in market capacity could have significant implications for premiums and coverage. JLT Specialty’s Construction Team is advising contractors to speak to their brokers well ahead of their renewal date to see where there may be amendments or alternatives to existing cover. In addition, as insurers now need additional time and information to progress any renewals, contractors should engage with them as early in the process as possible.

Main contractors are also encouraged to check their supply chain as the changing market conditions will result in smaller suppliers struggling to obtain adequate insurance cover. An imbalance of liability throughout the supply chain can result in contractors incurring huge liabilities for error and omissions made by suppliers. JLT Specialty says back-to-back contracts are a solution but these are not always commercially achievable.

Tim Smith, CEO of JLT Specialty’s Construction Team, said: “The market for PI insurance has been hardening over the last year, but it is only in the last few months that this has intensified. Contractors have enjoyed lower premiums and greater capacity of PI insurance cover for many years, and so I think many could face a shock when they come to renew. This may also prove problematic in negotiations with project owners who may still expect PI insurance to be cheap and freely available.”

“My advice to contractors would be to engage with their brokers and insurers as early as possible, and not wait until their renewal period as they may have done in previous years. Although changes to the market produce a number of challenges, brokers will always look for opportunities to create innovative solutions and alleviate cost increases wherever possible.”

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