It has been a quarter since our last update on the rapidly developing situation for our Approved Inspector clients. Since then, whilst there has been a great deal of activity both within Government and in the insurance market, there is still a lack of clarity as to what the future holds.
As we know, the recently enacted Building Safety Act includes a provision which amends the Building Act and removes the requirement not only for the Secretary of State to approve insurance schemes but also for Approved Inspectors to hold insurance through a Government approved scheme.
In order to give effect to the amendments included in the Building Safety Act, secondary legislation was laid before parliament in early July. This removes the requirement for Approved Inspectors to provide proof of adequate insurance when performing a number of their statutory functions, and amends the various statutory documents, such as an Initial Notice, accordingly. This secondary legislation came into force on 28 July 2022.
Our understanding and expectation is that there will remain a requirement in the CICAIR Code of Conduct for Approved Inspectors to maintain ‘adequate’ insurance and a need to maintain insurance to meet the demands of clients. In essence, this change effectively puts Approved Inspectors on a level footing with the rest of the construction industry.
The other consequence is that Approved Inspectors will now be free to source their insurance from whichever provider most closely meets the individual requirements of their business, with no government set minimum criteria applicable. Put simply, it means there is now no statutory obligation to insure in a certain way.
Approved Inspectors will also need to familiarise themselves with the revised versions of the Statutory documents and ensure their use going forward.
Insurance Implications
These changes will obviously bring with them profound implications for our Approved Inspector clients some of which are obvious, but others which are less so:
- Importantly, any policies already in force will be unaffected, with no change required, and they will continue to run until their usual expiry date.
- For any Approved Inspector renewing their policies on or after 28 July 2022, you will no longer be required to purchase your PI/PL via an Approved Scheme.
- The minimum insurance criteria will no longer apply.
- Consequently, public liability insurance no longer needs to meet any minimum criteria and the mandatory PI run-off cover, previously catered for within an AI’s PL policy, is no longer required. As such, AIs may choose to add PL cover to their wider general insurance arrangements, rather than purchasing a stand-alone policy. However, as with PI, we expect that quotations for renewals of PL policies with an unchanged specification to be available until the expiry of the current scheme.
- Our Approved Scheme no longer needs to be ‘Approved’ by the Government, and that ‘Approval’ is likely to be rescinded in line with legislation. The Scheme will nonetheless continue until its expiry.
- The insurers who have supported our Approved Inspector clients through the most challenging PI market conditions in a generation have committed to remain involved and will continue to seek to renew policies, on the basis of the current cover specification and wording until the expiry of the scheme.
The scheme is currently due to expire on 31 August 2022, but we are actively working with insurers to agree a two-month extension to bring the expiry date in line with our other construction schemes on 31 October. - We are continuing to work with insurers to agree an appropriate solution to replace the current scheme from its expiry onwards, with our ultimate aim being to ensure that we are able to continue to offer an insurance option to as many of our Approved Inspector clients as possible.
Underneath the headline grabbing changes, it is important to understand the backdrop. All sectors of the construction market have been through an incredibly challenging period over the last few years. From dealing with the consequences of Brexit, Covid-19 and the upheavals in the PI market, the recent past has been marked by extremely challenging renewal discussions. We have previously set out some of the reasons for the market changes and you can read more here.
Against this general picture of difficulties in the UK construction market, Approved Inspectors bring with them additional features that add further complexity to what is already an uncertain sector outlook. Approved Inspectors are a relatively small group of firms, working in a niche area, which is subject to significant uncertainty and potential change over the course of the next few years. There is little understanding around the future of the role, how liability will flow, how competency requirements might change, and how AIs will be regulated. There is also currently no indication from the new Building Safety Regulator of their plans in relation to insurance, such as guidance around the expected insurance limits or terms to be required, or how this will be policed.
The general uncertainties in the construction PI market, overlayed with the unique characteristics of the Approved Inspector exposures and requirements, combined with some potentially very large fire safety related claims being made against Approved Inspectors, do not make for easy conversations with the insurance market. Rest assured, we fully intend to continue as insurance sector advocates for the AI profession.
A forecast for the future
As we have for the last 30 years, Griffiths & Armour will continue to work on behalf of our clients and fully expect to be able to offer renewal terms to the majority of our AI clients. Inevitably, however, this fundamental shift for this particular segment of the PI market will bring change, so please be aware that:
– The insurer panel who underwrite our Approved Inspector scheme will need to be modified, and whilst the current insurers want to remain involved, the price of that involvement is very likely to be reduced line sizes. Essentially, they want to take a smaller share of the premium (and the claims) to reduce the perceived risk profile of this segment of the market. We will therefore need to engage with other markets to gain sufficient capacity in a restricted marketplace.
– Any new entrant to this market, whether part of our new Scheme or in the open market, will be nervous about legacy exposure and will likely seek to impose additional restrictions in relation to past work. We will robustly challenge any restrictions so that they are as narrow as possible and work with you so that you understand the impact on your business.
– Fire safety claims are a huge concern for the insurance market as a whole. We expect any AI policy renewing after the Approved Scheme has expired to contain a provision only covering fire safety work undertaken from inception onwards – i.e. it is highly likely that there will be no cover for any ‘Fire Safety Notifications’ arising from historic work. Please see our earlier guidance as to what types of claim this might cover.
– It is likely that cover in respect of statutory services will be available on an aggregate basis only, rather than on an unlimited ‘each and every claim’ basis. This is due to the uncertainty around the role and the potential new liabilities which Approved Inspectors might face in the future.
– Finally and sadly, it is important that we let you know that we are not able to guarantee that renewal terms will be available to all existing clients, particularly practices where insurers consider the risk profile to be particularly problematic. We will endeavour to provide as much notice as possible where this is a potential outcome, in order that firms have plenty of time to source alternative insurance provision.
As soon as we have finalised the insurance specification of the solution to replace our current Scheme, we will of course share full details with you. In the meantime, if you have any questions at all, please do not hesitate to get in touch with your usual contact at Griffiths & Armour.
