Recently we held a panel discussion about Professional Indemnity Insurance for surveyors with a few experts in the field: Paul Holford MRICS MISVA from Morgan Sloan Chartered Surveyors, Ruth Brown MRICS, Professional Indemnity Specialist Mark Carver, insurance lawyer Alexandra Anderson, and Hugh Garnett, Regulatory Policy Manager at RICS.
What is a Professional Indemnity Insurance and How ARP Works
Professional indemnity insurance or PII is a commercial policy designed to protect business owners, freelancers, and self-employed if clients claim a service is inadequate. As surveyors Ruth Brown and Paul Holford explain, applying for a PII can be quite stressful. Mark explains how the Assigned Risk Pool (ARP) works, functioning as a safety net where all the insurers who are approved to insure surveyors have to contribute some money. On the other hand, Hugh Garnett explains the changes in the minimum policy wording.
“Up until 2020, ARP was in place for those firms who couldn’t get insurance for a very good reason, which was claims experience,” Mark explains. “We changed the ARP in two ways: we changed it so we could offer 12-month terms without the requirement of a business review, and we changed the basis of coverage to what’s called an aggregate, plus unlimited round-the-clock reinstatements. The reason we did it was because we were concerned about the market supply and we wanted this function in place. If you get turned down Professional Indemnity Insurance, there is a safety net in place.”
“The minimum policy wording is the wording that we have in place, that insurers agreed to sign up to write RICS business to regulated firms,” Hugh explains. “It sets out the base level of cover that we believe regulated firms should have. This gets renewed on a yearly basis, and on the 1st of April, we made two changes to the policy wording. One was around fire safety cover, as a result of high-profile fire safety failures. In the new policy wording, we have agreed that insurance can continue to insert their own fire safety exclusions, but these will not apply to all professional businesses relating to buildings under four storeys. The second change is around cyber risk. We made a number of minor changes to the wording to clarify what is covered, to not aim to reduce the cover providers, but rather to clarify what is and what is not excluded.”
Covering Claims in the Professional Indemnity Insurance
When having your PII, it is important to check the details of what you are actually covered for. As Alexandra explains, it is not often the case that claims are not covered in the Professional Indemnity Insurance, although it can happen. She gives advice on how to decide on the amount of cover needed.
“The greatest risk is probably where you don’t have adequate insurance,” Alexandra explains. “If you don’t have enough to cover the claim, it doesn’t matter how great your insurance is at the time you did the work. I don’t think there is a hard and fast rule you could apply. You just have to be thinking about what the nature of the business that you’re doing is, and what kinds of claims you might come across. If you’re just doing pure survey work and not bank valuation, then the type of risk you face is very different.”
“The factors I would take into account is what have you contractually agreed to,” Mark adds. “I would suggest, you need to look back over a six-year period of what you’ve done and test the adequacy. I would then look at what’s available, and what that cost is.”
How to Reduce the Liabilities
In order to reduce the liabilities and the exposure of the surveyors, Alexandra suggests to first do proper due diligence on the client, and make sure it’s only the client who can make any claims against you in relation to the work that you’ve provided, avoiding any third-party reliance. She also suggests having good risk management and making sure that you have proper systems in place to check reports before they go out.
“You need to have terms of conditions to make sure you’re clearly recording what the scope of the work is that you’re doing, and any limitations to that work. Make it absolutely clear what the position is in terms of where liability may rest as a result of that. You should always think about having a conversation with your client about an appropriate sharing of risk of something that might go wrong on the project. Think about having other clauses that would be perfectly enforceable, like personal liability clauses ensuring that you can’t be sued personally. Also, operating as a limited liability company gives you some protection against claims coming against you personally, and against your assets.”
“I think the first and most important thing to do is get really good advice here,” Paul explains. “As surveyors, we should get a good lawyer that knows how to draft terms and conditions. Don’t try and do it yourself, or copy somebody else’s.”
“I want to recommend reading the risk liability insurance guidance. It does suggest some wording around terms and conditions,” Hugh adds.
The Current State of the Insurance Market
Finally, Mark goes over the current state of the market in general, sharing his thoughts on the future as well. As he explains, for the last 12 months, premiums for the profession as a whole increased by 35%.
“If I was to now look at the crystal ball going forward, in terms of the client base, insurers would be looking to increase rates by around 20% for the forthcoming year,” he says. “Rate in the insurance world means whatever your last declared fee income is plus that 20%. Our anticipation is that exposure would be down. So if your fee income was £100,000, last year, and it’s £90,000, this year, that’s 10% less. Then you add the rate on top. We would then look at what the issues on the market are, and whether we go into a recession, and what impact that has on insurers’ portfolios. We can understand why, because we know the financial crisis resulted in around 300% more claims as in payments to insurers over that period.”
“It would be really interesting to see how insurers cope with firms declaring reduced income, and what that does on their portfolio,” he continues, “because, remember, they have business plans as well and budgets and targets they have to meet. If I was looking from a member perspective, I would be looking at those insurers that have withdrawn over the past 12 months. That way we know who won’t be providing renewals from this point onwards.”
– Miller Insurance https://www.miller-insurance.com/
– Reynolds Porter Chamberlain https://www.rpc.co.uk/
– RICS PII Requirements: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/regulation/regulatory-support/professional-indemnity-insurance-requirements-version-8-april-2021-1.pdf
– RICS Minimum Policy Wording: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/regulation/regulatory-support/2021-rics-approved-minimum-wording–uk-.pdf
– RICS Assigned Risks Pool: https://www.rics.org/uk/upholding-professional-standards/regulation/regulatory-support/professional-indemnity/assigned-risks-pool/
– Risk, Liability and Insurance Guidance Note: https://www.rics.org/uk/upholding-professional-standards/sector-standards/valuation/risk-liability-and-insurance/
– Episode 031 Claims and Compliance with Alexandra Anderson http://thesurveyorhub.co.uk/031-claims-and-compliance-masterclass-with-alexandra-anderson
– The Surveyor Hub Community https://www.facebook.com/groups/the.surveyor.hub.love.surveying
Paul Holford BSc (Hons) MRICS is a member of the RICS with over 20 years post qualification experience. He is an RICS Registered Valuer, member of ALEP and highly experienced Chartered Surveyor. He is the owner and director of Morgan Sloane Chartered Surveyors who are regulated by the RICS, are ARMA partners and have the resources and experience necessary to provide expert advice to their clients.
Connect with Paul Holford:
Ruth Brown MRICS is a Chartered Surveyor and Director at Ruth Brown & Co ltd, providing bespoke surveying services throughout the Highlands and Islands.
Connect with Ruth Brown:
– LinkedIn https://www.linkedin.com/in/ruth-brown-mrics-5492b843/
– Website https://www.ruthbrowncoltd.co.uk/
Mark Carver leads Miller’s UK and International Professional Risks team which provides professional indemnity (PI), cyber, directors’ & officers’ (D&O) insurance solutions to a wide variety of clients and brokers in the UK and internationally. His clients include Professional Bodies, Regulators, Top 100 law firms, Lloyd’s Brokers, Top 10 Surveyors and international brokers.
Connect with Mark Carver:
Alexandra Anderson is an insurance lawyer and partner at City law firm RPC, who specialises in defending claims against surveyors and valuers.
Either via their insurers and upon direct instructions, Alexandra regularly gets drafted in to act for surveyors on the defence of a wide variety of claims, arising from all aspects of the typical surveying practice, from survey and valuation to property management and receiverships.
Alexandra is a regular speaker and author on a wide range of industry topics. She co-edits Hogarth’s ‘Insurance for the Construction Industry’ and was involved in the last 3 revisions to the RICS’s minimum terms. She sits on the Market Liaison Group and works with RICS on a variety of risk management and education issues.
Connect with Alexandra Anderson:
Connect with Hugh Garnett, Regulatory Policy Manager at RICS:
– LinkedIn https://www.linkedin.com/in/hughgarnett/