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Reducing the pain of Professional Indemnity Insurance 5 Counties CPD Conference 2011 9TH March 2011
Contents
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Professional Indemnity Insurance market update
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Policy coverage
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Claims
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Efficient insurance buying
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Why Howden?
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Contact us
Professional Indemnity Insurance market update •
The Bad News – Primary area of concern is claims relating to property valuations carried out during the economic boom – Given a six year primary limitation period expect claims arising from valuations to continue until 2013; 6 years after the peak of the property market – Primary layer of surveyors insurance is worth c. £50m to insurers. Notifications currently total in excess of £500m – Uncertainty about the volume of claims still to materialise, particularly those relating to commercial properties and those originating from primary lenders – Falling insurer investment income and rising claims have caused premiums, for some surveying firms, to rise to as much as 15% of turnover – Excesses have increased and limits of cover have reduced – Sole practitioners and smaller firms hardest hit
Professional Indemnity Insurance market update •
The Good News – Insurers reported uplifts in premium and investment income in the final quarters of 2010 – Reinsurance renewal rates fell in January 2011 – Premiums remain very competitive for non S&V activity i.e. agency & landlord and tenant and we predict premiums for these activities will continue to soften – New insurers entering the market who will provide competitively priced cover for firms that do S&V but, they are very selective about the risks they will write – Premiums expected to stabilise for larger, well managed S&V firms with good claims records over 2011
Professional Indemnity Insurance market update • In the background – The RICS has established two working parties to research the impact of rising PI premiums and to make recommendations for change but they must win lender and insurer support for any changes; this could be challenging – Lender activity –
Concerns about firms ceasing to trade and then re-establishing without acquiring run off
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Concerns about firms paying by Direct Debit and not keeping up to date with payments
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Lenders requiring higher limits
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Lenders concerned about excess levels as a percentage of fee income
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Surveying firms should be concerned about the extension of duty of care (Scullion vs.BOS 2010)
Professional Indemnity Insurance market update Insurers’ current perceptions of different areas of activity (As at December 2010) High risk 12 10 8 6 4 2 0
Low risk
Ratings are indicative only, insurers actual ratings will be impacted by a number of factors including claims history
Policy coverage •
What is covered? – Claims made basis – Any one claim limit – Any civil liability arising from the conduct of professional business • Any negligent act, error or omission • Breach of contract • Libel and slander • Breach of confidentiality
– Dishonesty – Cyber Liability – Awards by Ombudsmen – Legal representation costs – Compensation for court attendance
Policy coverage •
What isn’t covered –
Supply of or manufacture of goods/products
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Criminal fines
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Health and Safety or CDM
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Against public policy
Claims covered by other insurances •
Accidental damage to a third party or their property – PL
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Injury suffered by the Insured/Insured’s Employees – EL
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Claims notified previously…or those that should have been notified previously!
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The following contractual liability •
Performance warranties, guarantees, fit for purpose obligations, penalty clauses and liquidated damages
Claims • Steep rise in notifications against surveyors in the past two years but comparatively few claims have progressed to settlement. New claims across Howden Professional Risks’ clients 90 80 70 60 50 40 30 20 10 0 Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Source: Howden internal data as at December 2010
• However, settled claims have increased; 2009 saw 25 cases involving surveyors brought to the High Court, in comparison to one case in the previous 5 years*.
* source: Reynolds Porter Chamberlain
Claims No project is immune:
Wembley stadium
Bath Spa
Claims
The ‘Expectation Gap’ – Client: “My expectation is a Perfect, Profitable, Professional outcome.” – Surveyor: “I will use all reasonable skill and care in the performance of my professional duties”
Claims •
How to avoid them…. – Use explicit terms of business / engagement – Limit liability under contract – Follow Red Book Guidelines and evidence that you have done so – Ensure that new business is allocated by a Director/Partner – Ensure that work is adequately supervised – Ensure that valuation reports are checked and signed off by a Director/Partner – Facilitate effective internal communication to avoid conflicts of interest – Ensure client queries are handled promptly – Keep accurate records of all communication with clients – Don’t operate outside area of core expertise – Be aware that fee disputes may lead to a complaint
Claims •
How to avoid them…. – Ensure sub-consultants are adequately insured – Ensure culture encourages risk management not risk taking – Ensure that appropriate caveats are included on valuation reports to limit liability – Do a good job!
Claims •
Claims notification procedures • Give notice in writing as soon as reasonably practicable of any claim or intention to make a claim. • Suggest no more than 3 working days for any formal document commencing legal proceedings. • Give notice in writing as soon as reasonably practicable of any Circumstance and in any event must be prior to expiry of the policy period. • Make no admission of liability, offer or payment to settle a claim or circumstance • Give assistance to Insurers in respect of investigation, defence & settlement • Adjudication – Condition precedent to the right to be indemnified to notify within 2 working days, and not to accept the decision of the adjudicator as final and binding without prior consent of Insurers “A Condition Precedent is a legally recognised term for a requirement which must be satisfied before the insurance contract can be performed. If not carried out Insurers can reject a claim or reduce the amount of indemnity. This represents a serious risk to your business.”
Claims •
How do I identify a Circumstance which is likely to give rise to a claim? – A Circumstance is defined by the policy as any incident, occurrence, fact, matter, act, error or omission that might give rise to a claim • Verbal or Written • A threat to sue or seek compensation (even though you may think that there are no grounds) • An error that only you or your employee or colleague knows about • A complaint where if it were true the client could be entitled to monetary compensation (even though the quantum is within your excess)
– If in doubt consult your Broker
Claims Minimising the risk of insurers voiding a claim •
Failure to react quickly and efficiently to a claim or circumstance may result in a claim being rejected. It is important to ensure: –
a nominated person or team is responsible for notifying insurers of claims or circumstances
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those responsible understand what and when to notify
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all employees understand the procedure for handling a complaint
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Do not admit liability or agree to settle a dispute without the prior consent of Insurers
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Do not incur legal costs without your insurer’s consent
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Never breach a Condition Precedent
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Keep Insurers informed of material changes to risk
Claims •
Case study – Lack of supervision and communication • Surveyors notified underwriters of a potential claim concerning a possible conflict of interest in the disposal of the freehold of a property • Insured’s internal checks had failed to highlight that one office had been advising the tenant whilst another was advising the freeholder • Two years later, after the Insurers had closed their file, the tenant of the property made a claim against the insured • One of the Insured’s partners negotiated a settlement of £290,000 • Condition of all Professional Indemnity policies that no admissions of liability or promises of payment are made without insurer’s prior consent • Clear breach of the policy, which may have resulted in insurer avoiding the claim • After lengthy discussions with Insurers and their lawyers Howden successfully persuaded underwriters to settle the claim in full
Efficient insurance buying •
Start the process early – at least 6 weeks ahead of renewal
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Make sure your broker understands what you do and how you do it
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If your premium is over £20,000 don’t ask more than 3 brokers to quote as insurers can be discouraged from quoting if they see your proposal from several brokers
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Ensure the person in charge of buying insurance understands how to run the process
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Ask your broker for tips on presenting your risk to insurers
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Your proposal form represents your business; does it represent it well?
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Submit additional information with proposal form; terms of engagement, brochures etc
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If your premium is in excess of £50,000 ask to meet insurers
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Concentrate on improving risk management and ensure that risk management policies are reflected in your proposal form
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Ensure your broker and insurer have a strong claims team – it’s not just about premium
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Ensure you understand what your policy covers
Efficient insurance buying •
What to look for in a Broker – Strength of relations with appropriate insurers – How do they handle claims? – Sector expertise – do they understand what you do? – Which other surveying firms do they work with? – Client testimonials – How will your account be managed after renewal and by whom? – Are they Lloyds Brokers? – What additional services do they offer? – Premium finance arrangements
Efficient insurance buying •
What to look for in an Insurer – On the RICS list – Financial stability – AM Best rating of A- upwards – Long-term commitment to the surveying industry demonstrated through recent investment in experienced staff – Willingness to develop a firm understanding of a business as opposed to applying a blanket underwriting approach across a sector – How do they handle claims? Look for a claims philosophy that is commercially orientated – We have a preference for Insurers that employ claims professionals as opposed to lawyers as lawyers tend to take a more litigious view that can inflame the claimant.
Why Howden? •
Howden is the Royal Institution of Chartered Surveyor’s only preferred Professional Indemnity broker in both the UK and the Middle East
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We are rapidly growing profitable business with a long term commitment to the surveying sector and a stable team thus meaning our clients receive a consistently high level or service
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In the last financial year we have lost only one client from the surveying sector
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We look after a broad range of surveyors, architects and engineers from sole practitioners to King Sturge
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We are committed to constantly developing our service offering for surveyors as evidenced by the introduction of the Howden legal panel and our recently launched PII survey of RICS members (the first survey of its kind ever undertaken)
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We maintain constant contact with the RICS, a very broad range of surveyors, insurers and legal experts to ensure that we provide a service that meets and defends the surveying industry.
Contact Us Emma Vigus T: 020 7648 7131 M: 07791 920036 E:
[email protected] Matt Farman T: 020 7645 9371 E:
[email protected] www.howdengroup.com/surveyors
Disclaimer This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Howden Insurance Brokers Limited, except that clients of Howden Insurance Brokers Limited need not obtain such permission when using this report either for their internal purposes or to give to their clients. The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. Howden makes no representations or warranties, expressed or implied, concerning the accuracy of information contained herein. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Insureds should consult their insurance and legal advisors with respect to individual coverage issues. Copyright © March 2011 Howden Insurance Brokers Limited
