RICS Professional Indemnity Insurance Market – Changes Since July 2024

As of 1 July 2024, the Royal Institute of Chartered Surveyors’ (RICS) Professional Indemnity Insurance (PII) Requirements and Minimum Approved Wording for regulated firms in the UK and Ireland has implemented an improvement in cover for its membership.

The amendments are to fire safety cover for buildings over four storeys (which were excluded under the previous fire safety coverage offered) and the assessment of external wall fire risk.  These improvements to insurance cover are another sign of the shift towards a ‘softer’ trading environment within the wider PII market.

Background to the changes

As of the latter part of 2019, the PII market started its shift into what was to become the longest and hardest ‘hard market’ ever.  The soft/hard market cycle is a long-established process that sees the willingness of insurers to write business ebb and flow over time.

The reasons for the most recent hard market are numerous but, in short, come down to the profitability (or lack thereof) of the wider PII market due to claims losses and concerns over possible future losses.  Grenfell, and the subsequent revelation of construction practices and risk exposure, and the introduction of the External Wall Fire Review form (EWS1), which allows for any required fire safety remediation works to be reflected in a building’s valuation, and Fire Safety in general, led to significantly increased exposure concerns amongst insurers.

Due to insurer concerns and the way the wider PII market was heading, as of 1 April 2020, RICS allowed insurers to apply full fire safety exclusions to the approved wording.

Given the unsurprising, almost universal adoption of the Fire Safety exclusion by insurers, RICS did some rapid back-peddling. In 2021, insurers were required to provide the current limited Fire Safety cover for professional services on buildings of up to four storeys.

Fire safety cover

Since 2021, insurers have been required to provide cover on an aggregate, defence costs inclusive basis for professional services on buildings of four storeys or less, with a blanket exclusion dispensation in place above that height.  Although early adoption was fractious, with some insurers continuing to refuse such cover, and thereby were only allowable via specific dispensation, by the 2022 renewal most would offer the current requirement for buildings of four storeys or less.  Those few that continued to exclude fire safety required special dispensation from RICS before cover was placed.

At this time, the Building Safety Act (2022) with its introduction of new roles and responsibilities for those involved in building design, construction, and management, along with the significant extension to the limitation period for claims – some being retrospective in nature – brought with it the potential for significantly increased claims exposure.  However, given the amount of scrutiny post-Grenfell, the Act introduced a system of markedly robust controls for work on ‘Higher Risk Buildings’ (18 metres or taller), which most believe will significantly reduce the likelihood of future claims.

Consequently, despite RICS’ initial intention being to improve cover for buildings above the existing four storey limit up to an 18 metre, given the prevailing market trend towards a ‘soft market’ environment and the amount of control and accountability for buildings over 18 metres, the RICS was able to agree a blanket cover for all buildings of fivestoreys or more as follows (applies to the UK and Ireland):

• Negligent act, error, or omission (not full civil liability) – current cover for buildings of four storeys or less is on a full civil liability basis.
• Applicable to professional services undertaken on or after 1 July 2024;
• Cover can be in the aggregate, with defence costs included in the limit of indemnity;
• The uninsured excess may be applicable to defence costs.

External Wall Assessments (EWS) and Fire Risk Appraisals of External Walls (FRAEW) – (UK Only)

Another allowable exclusion was in relation to the completion, and/or reliance upon for valuation purposes, of EWS1 forms.  The EWS1 form was intended to reassure mortgage lenders on flats where the building has cladding.  However, concerns relating to the long liability exposure (long tail) and concerns over the availability of suitably qualified and competent professionals and issue specific training, combined with the prevailing market conditions, meant that this was almost universally excluded from cover.

Government assistance was then required to step into the breach and provide support in an area that had resulted in a national crisis.  Initially intended to provide a five year support structure by offering insurance to those involved in the undertaking of EWS1 forms, the government backed insurance scheme that started in September 2022 was brought to an end in October 2023.

In the meantime, to ensure EWS1 forms were fit for purpose, RICS developed the External Wall System Assessment Training programme and offered, with government funding, to train up to 2,000 “qualified professionals” in the Level 6 Ofqual accredited qualification.

Due to PII market improvement and combined with greater specific training on the matter, RICS has determined that completion of EWS1 forms and Fire Risk Appraisals of External Walls are core surveying services and cover must be available to those “qualified professionals” who undertake such work.  Therefore, policies issued from 1 July 2024 must provide cover for claims relating to EWS1s and FRAEWs for buildings up to 18 metres.  The cover required is as follows (applicable to the UK only – not Ireland):

• Negligent act, error, or omission (not full civil liability basis);
• Applicable to professional services undertaken on or after 1 July 2024;
• Cover can be in the aggregate, with defence costs included in the limit of indemnity;
• The uninsured excess may be applicable to defence costs.

Cyber

RICS has now removed its own cyber exclusion clause, enabling insurers to adopt the more typical, International Underwriting Association’s model clause (IUA 04 017 Professional Indemnity Cyber and Data Protection Law Endorsements).

More insurers

Since the market began to soften in 2023, no insurers have withdrawn from RICS’ list of approved insurers and in 2024, another three have been added to the list that has slowly increased over the last couple of years – another sign of the increased market appetite and capacity.  This year, Chaucer Syndicate 1084, Folgate Insurance Company Limited and Tokio Marine Kiln Syndicate 510, have been added to the fold.

Comment

The changes above are a sure sign that the market is moving more favourably towards firms who purchase PII.  Although the revised changes to the 2024 RICS Minimum Approved Wording continue to leave firms exposed to fire safety claims arising from pre-July 2024, the improvement is positive shift in the right direction.

Given the scope of works on these larger buildings, the cover available is still, arguably, quite nominal.  However, it does allow for perhaps the greatest concern to be alleviated, that is, the cost of mounting a robust defence in areas of alleged negligence, error, or omission.

More positively, the changes reflect an improving outlook regarding the future of fire safety exposure and a wider improvement in risk appetite of insurers.  Overall, this is a positive step in the right direction that allows RICS professionals to spend more time focussed on doing what they do best, and less time concerned over the availability and scope of their Professional Indemnity Insurance.

JM Glendinning Professional Risks is an independent, specialist provider of PII to RICS surveyors and property professionals. If you would like to discuss your insurance requirements, please do not hesitate to get in touch.

David Burnhope, Dip. CII.
Client Director
JM Glendinning  Professional Risks
07842 431019
David.Burnhope@jmginsurance.co.uk