Crispin Matson, managing director of Rybka, has just seen his professional indemnity insurance (pii) payments rise by an incredible 60%. "I couldn't believe what I was hearing. We pay a fortune in premiums already – it's ridiculous," he says.
Rybka are not alone in facing a dramatic increase in premiums – it appears that the rise will apply to the majority of consultants. According to Matson it will affect everyone who is involved in the insurance scheme run by the Association of Consulting Engineers.
The reason for the increase is two-fold. Firstly, the result of the New York terror attacks has seen insurance premiums rise on practically all things building and construction related, as confidence in the safety and security of buildings has fallen to an all-time low.
Hoare Lea has also suffered a similar rise in premiums to that of Rybka. Partner Graham Dane is outraged by the increase and believes that insurers are acting in an opportunistic manner. He explains: "We are being told that historically pii has never had a good return and that since September 11 insurers have become even more reluctant to offer it. For them it's never been a good market to be in, now a lot are simply saying let's get out all together. This means that the market is now less competitive and so those insurers still offering pii can raise their premium demands to whatever they want."
The second apparent reason for the increases is due to the fact that the process of claiming from an insurance company has become much quicker in recent times.
This is because of a government-introduced arbitration scheme, which effectively simplifies the whole process. Where once a professional indemnity insurance claim could take several years to be completed, and money transferred, it can now be all over in a matter of months. As a result companies or individuals are becoming increasingly inclined to pursue a claim.
This has the knock-on effect of leaving the disgruntled insurer out of pocket, as money owed, which once sat in the insurer's bank account for years gathering huge amounts of interest while the claim was processed, now sits equally as well in the account of claimant. Everyone knows insurance companies don't like losing money – so the obvious consequence is an increase in premiums.
Currently pii is not mandatory under British law – but at the same time it is not really considered optional for any reputable firm. So it appears that companies may be forced to bite the bullet. Matson believes this is the case but offers hope for the future: "It seems to me like there is little we can do. What we can only hope is that it is just a one off. The arbitration scheme is on a catch-up process at the moment, so premiums may go down again when it eventually catches up."
Hoare Lea's Dane agrees: "Once the new system catches up then hopefully things will plateau. Also what we must hope for is that insurers will be attracted back into the market when they see what premiums are being paid – making the market competitive again and bringing down prices."
What then are the ramifications for companies and clients? Some consultants already pay in excess of £100 000 a year in insurance, and taking a 60% increase as an example, that means finding an extra £60 000 plus from somewhere.
Rybka's Matson is concerned for the smaller consultants: "At the moment we pay a 2·2% premium of our total turnover. The rise we are facing is substantial enough, but for smaller companies it could be even worse. The way it works is that, generally, the smaller the company the greater the premium. This could mean that smaller companies are faced with even higher increases in payments."
The obvious assumption then is that money will have to be recouped from the clients. Dane feels that there may be little option: "The extra money we need to find to pay these increases comes straight out of our profits. Unfortunately, it seems most likely that we will have to pass this expense on to clients."
Source
Building Sustainable Design
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