Indemnity Insurance and improving your disclosure

Following a prolonged period of challenging market conditions in the architects PI market, there was a stabilisation through the latter half of 2022 and into 2023. It appears that insurers have largely taken the necessary corrective measures to address the impact of excess capacity spanning over a decade, which had led to premiums being pushed to unsustainably low levels.

The long-lasting ‘soft market’ conditions (which abruptly ended towards the end of the last decade) not only meant low premium levels and wide policy coverage, but also a lack of emphasis on detailed risk profile information. It was very common for architects to simply submit an (often sparsely completed) proposal form and receive competitive quotations with little or no additional information requests.

The ‘hard market’ conditions of the past few years have generally seen insurers reluctant to offer quotations based on poor, or missing, risk profile information. Supplemental questionnaires for instance in respect of fire safety, basements and (for a short-lived period) Covid-19 have become the norm for all but the smallest of architectural practices. Sanction screening and knowing your client processes have also come under the spotlight in light of recent worldwide events.

There appears to be an increased willingness from insurers to entertain a well-considered and constructive ‘broke’ as opposed to the ‘take it or leave it’ approach of the recent ‘hard market’ years. Using a specialist professional indemnity insurance broker can offer several benefits when it comes to securing the right coverage/price. Nevertheless if firms are seeking to achieve better PI outcomes they should be taking a strategic approach as to how they prepare for their renewal, and compiling a thorough and compelling submission.

A method that we have recently seen achieve objectives effectively, is for firms to view their renewal disclosure as an ‘Insurance Presentation’ document, rather than a series of separate generic forms/questionnaires. A professionally produced renewal document (ideally with a front cover and index) is a more persuasive proposition to an insurer, and also goes a long way to demonstrating that a firm is taking a methodical approach to their insurance and their attitude to risk.

Top tips for renewal presentations:

Collate all the information into one PDF ‘Insurance Presentation’ document with an index and front cover.
Use the forms/questionnaires requested by your broker/insurers as the basis of your document.
Include an executive summary covering the firm’s history and any specialisms (sector/building types etc.), but also any key points as to why you consider your business low risk and unlikely to suffer from claims. Examples could be the majority of your work having no site/inspection role, or perhaps you have robust internal risk management processes that have a clear track record of working.
Consider adding additional information via graphs/charts. Such as work splits, company structure diagrams (to demonstrate internal project oversight) and revenue breakdowns.
All unresolved claims/notifications or claims with payments should have a summary of the present position and if appropriate your view on liability or the likelihood for the matter to progress adversely.
Include a summary of the lessons learned from your experiences with professional indemnity claims. You must demonstrate any key takeaways or insights you have gained, particularly in relation to risk management, communication with clients, documentation etc. Your perspective will be valuable in helping to demonstrate to insurers that a recurrence of a similar claim is unlikely.
Don’t wait to be asked! If you have a particular element of your risk profile that could be seen as having a higher than typical liability (for example a difficult jurisdiction, higher contract value or innovative design) then explain the elements that reduce the exposure to insurers.
Don’t think you have to rigidly abide by the forms/questionnaire supplied to you. If you consider your risk profile can be explained by a different data set, or a slightly altered question then include such within your presentation. In such circumstances you should refer the reader to the data included and the criteria you’ve used to make the disclosure.
Explain the systems you have in place for your staff to keep up-to-date with industry developments, regulatory changes, and emerging risks in your sector. This will demonstrate to insurers that you seek to identify potential risks and take steps to mitigate them before they turn into claims.
Describe your process and ensure written terms and conditions for your projects are in force at the outset. The ability to defend claims can be impacted without an unambiguous scope of work, project schedule, defined duties and so on. Confirming to insurers that your responsibilities (and those of your clients) are clear and fair/reasonable will assist with encouraging insurers to issue quotations. If you’re able to include liability caps and net contribution clauses within your written contract terms then confirm that within the presentation.

Insurers will in the main respond better to concise, pertinent and clear risk profile information. Evidencing an adverse approach to risk is key but ‘data dumping’ will usually add little value to the renewal process. For example, summarising and giving some examples of your internal processes would be a superior method than adding a 50 page internal procedures manual to the presentation.

Please be aware that it is a legal requirement for you to make a fair presentation of the risk to insurers. This means disclosing every material circumstance that you know or should know relating to the risk to be insured, including information known by your senior management and those responsible for arranging your insurance, as well as information that would be revealed by a reasonable search of information available to you. It's important to keep this in mind to ensure that you comply with the legal requirements and provide insurers with all the relevant information they need to assess the risk.

If you have any further questions or concerns about professional indemnity insurance, risk management, or the renewal process, please don't hesitate to contact the RIBA Insurance Agency by calling 0800 062 2042 or email uk-pi@ajg.com.