Construction reform a must warn insurers

The insurance industry has called on the UK construction sector to get its house in order and implement a range of reforms if it wants to access affordable professional indemnity cover.

The International Underwriting Association has called for continuing improvements to regulation and culture, prioritising quality construction and safety over cost-cutting. As part of the reforms it supports the creation of a new building regulator to better identify the duties of those involved in the construction process and to ensure more robust oversight throughout the life cycle of a building.

An industry survey published by the Construction Leadership Council highlighted significant cost increases and the introduction of new restrictions on professional indemnity insurance. Such tightening coverage terms are the result of a considerable period of difficult underwriting conditions and deteriorating claims performance, driven partly by endemic problems within the industry, members of the IUA’s Construction Professional Lines Working Group believe. Many issues influencing risk management have already been identified by the Hackitt Inquiry established in the wake of the Grenfell Tower disaster.

However the IUA added reform should not be restricted in focus to high rise residential buildings.

Chris Jones, the IUA’s Director of Legal and Market Services, said: “It is clear that the construction industry and professional indemnity insurance market have both experienced extremely challenging business conditions. Insurers have handled a great many claims arising from fire safety issues and the use of cladding, but although high rise residential buildings are the biggest worry there are also more widespread risk management concerns.

“We are encouraged by a proposed overhaul of the regulatory framework, but it is clear that many historical liabilities have yet to develop into claims and this remains a key factor for insurers in their underwriting assessment.

“A shift in culture is required in order to overcome continuing uncertainty about the enforcement of regulation and a lack of oversight and accountability in the construction process.

“In spite of many challenges insurers continue to offer a wide and competitive range of construction professional indemnity products. Construction is a complex industry and IUA members are keen to work collaboratively to ensure a better dialogue on risk management. We are pleased to be represented at the Construction Leadership Council.”

The IUA Construction Professional Lines Working Group was established in 2019 to encourage greater engagement between insurers, government, regulators, and construction firms. It has welcomed many of the recommendations in Dame Judith Hackitt’s building regulations and fire safety report, commissioned by the Government.