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How do we resolve the insurance crisis?

08 February 2021
Insurers and architects need to rediscover their mutual interests, says Mark Klimt. Single project insurance could be one way out of the impasse. 

This article first appeared in the 27 January 2021 edition of Architects Journal.

We have been told an unprecedented number of times that we are living in unprecedented times. This continues, with much of the country entering the New Year in lockdown and subsequently a large proportion of the population is working from home. The situation increases the urgency in how historic fire safety regulations are to be interpreted, along with responsibility for compliance.

Insurers also still take a broad-brush approach, attaching wide exclusions in respect of these and other risk. As a result, the portents for an early return to more manageable practising conditions and a more co-operative relationship between insurers and consultants do not look particularly favourable.

However, the restoration of that co-operative relationship is key to allowing the construction industry to assist the economy in weathering the new challenges. To do so, insurers need simultaneously to look again at some existing but largely ignored options, as well as to develop a new and properly interactive way of assessing present risk. 

Architects have, over the past 12 or 24 months, received a stark reminder that the pendulum of artificially low annual premiums eventually swings back with corresponding ferocity. That fairly bitter pill has now largely been swallowed and insurers can expect to receive a more realistic return for the protection afforded.

Underwriting, though, does need to be more firmly based on the risk factors represented by each potential insured. A blanket exclusion, say, of any activity relating to fire safety as a response to issues of the combustibility of cladding material used in constructions in excess of 18m high, is going to have devastating (unintended) consequences for an architect designing safe means of escape on a domestic extension, or designing an internal reconfiguration. 

Similarly, a blanket exclusion on any design relating to a basement, as a response to architects involving themselves in structural engineering issues of below-ground water-tightness, will make it impossible for architects to design anything that sits on top of, and therefore joins a basement.

Single Project Insurance

One answer would be to revisit the question of single project insurance – something which insurers in the UK (unlike in Europe and elsewhere) have historically not been keen to commit to.

If, though, the alternative is for a large percentage of insureds to be unable to obtain the kind of insurance they need to practise, then it must be worth further consideration. Each project could be considered in the round, with the nature of the work, the assembled team and assigned roles all vetted before a suitable premium is fixed and an equitable, flexible system agreed for re-assessing this over the course of the liability period. That way, insurers would be satisfied that their particular sensitivities are catered for to the extent that they exist in that particular project, whilst insureds would feel that they were being rated on themselves, rather than on the risk represented by their profession and beyond. 

A separate idea would be to wed the interests of insureds to those of insurers (when at the moment too often it feels like a mutual war of attrition) by way of insurers fixing the premium retrospectively, dependent upon the architect’s actual income over the insured period. Architects would then have the security of knowing that a sensibly reflective percentage of their earnings would be expended on protection for realised assignments.

Insurers, meanwhile, if satisfied with the nature of the risk and able as a result, could provide a wider nature of protection that will both contribute to and participate in the insured architect’s likely consequent wider project base and success.

It would be hard to exaggerate the impact on the architectural profession of the combined effect of steeply increased premiums, uncertain trading conditions and insurers’ block response to the challenges that their own industry faces. At present, insurers and insured consultants are operating in separate, isolated silos against a potentially hostile economic and legal backdrop. The construction industry is actually relatively well-positioned, given that its services are badly needed as an important part of the government’s plans to revitalise the economy and given that construction can largely continue, even in an otherwise national lockdown.

The insured/insurer relationship must be based on openness, co-operation, and utmost good faith.

In order for practices to survive and to serve the industry, and in order for insurers to realise the income that this activity would generate, the parties need to rediscover their interdependence and be reminded that for the insured/insurer arrangement to work (whether at the initial proposal stage, the rating of the risk, or the reporting of the details of any potential claim, right through to the resolution of any such claim) the relationship must be based on openness, co-operation, and utmost good faith.

The separate silos need to come down and the partnership between insurer and insured re-established. Bespoke insurance arrangements to fit individual circumstances, such as would be represented by a single project insurance policy or a premium adjusted retrospectively to reflect the architect’s actual, rather than projected, fortunes, would be a huge first step.

Mark Klimt is an insurance partner at global legal business DWF. He advises and defends many of the country’s leading architectural firms and is a special adviser to the RIBA.

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