Construction Liability - BIBA calls for change

The British Insurance Brokers’ Association is again committing to try to improve the

PI insurance landscape for construction professionals. This goal continues as one of

their central themes for 2023. In conversation with Paul Berg, we are joined by

BIBA’s head of general insurance, Alastair Blundell, and G&A’s own Craig Roberts

for a Q&A session on why construction PI insurance is so high up the trade body’s

agenda.

Paul : Alastair, welcome and thank you for agreeing to join us. I’m sure our

clients will appreciate the broader insight you can bring to a subject that’s

very close to them. Just setting the scene, BIBA’s manifesto published last

month contains a call to actio n in support of construction professionals…why

has this area featured so prominently?

Thanks for having me, Paul. BIBA’s involvement with PI related fire safety issues

stems back to, I think, 2019 when we were first alerted to serious issues in the

market. At that time many brokers were asking us for help in their efforts to place

construction related business. The volume of calls and messages we were receiving

relating to PI was completely unprecedented and it seemed to us that there was a

huge issue for some brokers who simply couldn’t find insurers willing to help. The

seriousness of the underlying problem was also unusual – the insurance our

members couldn’t find, or at least not at a reasonable cost – was to allow their

customers to remediate dangerous buildings. Insurance is important, of course it is,

but this was a matter of life and death for tens, if not hundreds, of thousands of

people still trapped into living in dangerous buildings. That, ultimately, is what drove

us to take up the debate and highlight the problem to Government to see if a

coordinated solution was available.

Paul : Craig, BIBA’s involvement has been instrumental in bringing the

problems in the wider PI market to the attention of senior government

ministers; where do we fit in to these clearly vital engagements?

Obviously, we have plenty of technical insight into the problems that our clients and

our insurance partners face, but never before has there really been a platform to lay

those problems out at the level we have been doing over the last two years or

so. Since getting involved, our focus has been to provide technical support to BIBA

to allow them to make the case on our clients’ and the wider professions’ behalf. I’d

certainly echo Alastair’s final point though: throughout the last few years, the aspect

driving us more than anything has been the need to do whatever small thing we can

to help those people living in dangerous buildings. Although the picture is far more

nuanced than the sound bites that we read in the press, we can’t and shouldn’t look

to get away from that central issue.

Paul : Alastair, so what is it exactly that BIBA and G&A have been doing?

On reflection, looking back to 2020, we didn’t appreciate the scale and complexity of

the issues we were trying to address. In the early days, we assumed that there was

likely to be some technical market issue at the heart of the problem and which was

capable of being remedied on a macro insurance level. As it has transpired, we

found quickly that we were grappling with some fairly fundamental aspects of the

way the construction market works and, in particular, how that market was failing

many construction professionals. The number of moving parts and the complexity of

the issues was immense.

We were not alone in underestimating the difficulties faced by the sector. Those

early days in 2020 were actually more about us explaining how the PI market worked

and the nature of the difficulties the professions were facing to our colleagues in

Government. Only following that significant education exercise to raise awareness,

and through working with G&A, other members and professional bodies and

institutions, could we then move to a second phase of lobbying those in Government

who have the ability to help the professions secure the cover they need.

That lobbying saw some initial success and we were pleased that Government has

introduced the EWS1 insurance scheme which is, to our knowledge, the first such

intervention of its type. We recognise, though, that this is only a small part of a much

bigger picture, but we had to start somewhere. Our aim is to next look at the market

for those working on remediation projects in support of the Government’s BSF

(Building Safety Fund) scheme.

Paul : Craig, what is that bigger picture?

We can’t hope to do it justice today, but the sum of the parts of what we’re calling for

is nothing more, or less, than a revolution in the legal and insurance environment for

everyone working in construction. This isn’t about the usual arguments which pit

consultant against contractor, or client against design team: it’s about changing, for

the better, the environment for everyone.

As was said at one of our recent industry roundtables, the end of this journey needs

to be not having created standard contracts, or having a law on proportionate

liability, or even increasing fees. The end point needs to be a world in which

construction professionals are highly valued and that the role sits alongside the most

admired professions in society.

That must be the destination in order to create a sustainable future for those working

in construction. At least for us, the journey to get there is about making some

headway on the legal and insurance factors that lie in the way. This aspect alone

contains many necessary steps relating to how risk is allocated, how that risk is

insured and what the law across the UK and Ireland says. These are some

significant challenges and that’s why we’re working with like -minded organisations to

move some of these ideas forward.

But it is, of course, much more than an insurance or legal problem. Having a future

where ‘engineers’ and ‘architects’ (and there’ll come a point where we’ll need to be

specific about what roles we mean) are viewed by the public in the same manner as

lawyers, or accountants, is about more than the legal or insurance framework. It’s

about a whole host of factors which determine how the professions are viewed by

the public. That means an industry-wide drive to address all sorts of fundamental

questions from the ethical conduct of the UK engineering and architectural

professions, reinventing the way procurement is undertaken and a transformational

shift in how we measure value.

Paul: Alastair, we’ve seen at the end of January an interview from Michael

Gove MP where he appears to accept some responsibility of Government for

the broader failings in regulation. What do you think this tells us?

Gove’s positioning is interesting, and the mea culpa is certainly the first time there

has been public acknowledgement of the failings in regulation. We’ve all known

since fairly early on in the engagement that there were failings in regulation, but I’m

sure the families in particular of those that lost their lives that night [in the disaster at

Grenfell] will welcome the admission and hope that valuable lessons have been

learned. The other aspect of Gove’s statement that’s sure to attract interest from

commentators is his view that sins of omission (i.e. Go vernment’s failure to regulate)

are of a different order of magnitude from the sins of profiteering (i.e. bad actors in

the construction industry gaming the rules for profit over safety). I think that’s hard to

argue against. Time will tell whether or not Sir Martin Moore-Bick agrees with that

analysis in his report following the public inquiry into Grenfell due later this year, but I

think it’s a safe bet that we will see some fairly damning criticism laid against the

construction industry. The question for us is will that lead to a further contraction of

the market just as it seems to at last be settling down a little?

Paul: Craig, any thoughts on Mr Gove’s statement?

I think the danger with all soundbites is the risk of viewing a complex problem

through a simplified prism, created largely for public consumption, which allows only

for ‘baddies’ and ‘goodies’. That there are bad actors in construction is nothing new

and is no revelation. Those who have profited at the expense of lives deserve the full

punishment the law allows, and Gove is right to say as much.

The difficulty for us is that most professional firms will face PI claims not because

they are bad actors, but because they will be ensnared in the webs of liability that

are created on construction projects every day. We all know the contractual

landscape on projects of any complexity is very often loaded against the team

delivering it, particularly its professionals. Clauses which impose liability absent any

wrongdoing will mean that firms, whose financial exposure to some of these claims

ought to be modest, will be anything but. The joint and several liability principles in

our legal landscapes will exacerbate that too, particularly for liabilities relating to

work undertaken long ago where few firms, if any, will still be trading.

The ‘polluter pays’ principle put forward by Government is fine in a situation where

identifying the ‘polluter’ is clear -cut. In our world, there is too much complexity, there

are too many interfaces, there are too many shades of grey.

Paul : It seems that Craig is rightly highlighting the risk that a professional

consultant’s proximity in contract to a ‘bad actor’ can lead to real and

significant exposure. Alastair, do you agree with that and what’s the solution?

We’re going to see some really egregious cases coming where developers, builders

and professionals have failed, or have cut corners and, as Craig says, those guilty

parties should pay. And the cost to those who have committed the most extreme

offences might be more than money. But putting those to one side, the bill

associated with ‘fixing’ the systemic problems that are industry -wide associated with

fire safety failings will be monumental, far bigger than the entire PI market

combined.

With responsibility for the crisis resting with parties as varied as Government,

regulators, manufacturers, testing houses, construction firms, developers, architects,

construction professionals, building control and the insurance market as a whole,

there are a huge number of parties involved. The ‘crisis’ also manifests itself in many

forms, from properties with defects which are relatively minor, through to whole

blocks which are barely habitable, or outright dangerous.

That’s why we’re advocating a multi -track approach which should see Government

back the remediation of dangerous buildings first. In order to speed up that

remediation and allow industry to help with that work, Government needs to

underwrite the fire safety risks associated with that work, in the form of an insurance

or indemnity scheme. Professionals who are working to fix the crisis need to be

protected from the potentially disproportionate risk of doing so. Absent conventional

insurance protection, the Government must step in to underwrite this risk.

For less critically urgent work, the insurance and liability requirements of the BSF

need to be amended to more proportionately reflect the risk and the cover that is

actually available in the market.

Finally, we need to rally ourselves for the long-haul which will be changing the

environment. The reason that the construction industry is in this position is because

of the ‘race to the bottom’. Rather than tinkering around the edges, we need to bring

some real structural reform to the legal, commercial and operational environment for

those designing and constructing the built environment.

Paul : These thoughts chime with the risk awareness guidance we have

compiled, communicated and discussed at length with clients for decades.

The feeling we encountered was it was too big for one client or even one

profession to tackle. Craig, what is your ‘next generation’ lens?

Absolutely agree with you both. That we need to look to the fundamental problems in

the industry is a view we have long since held, and critically, shared with those who

will listen. Our role in the food chain, as insurance intermediaries, does tend to see

us view the world as having liability problems and insurance solutions which, even

with initiatives like reforming joint and several liability, is probably not a sufficiently

high-level view to get us out of the weeds.

Dame Judith Hackitt was right to identify ‘culture change’ as being critical to

improving quality and safety in constructions. As I’ve said, we would argue that a

necessary corollary of that culture change is fundamental shift in the position of the

professional team.

The Building Safety Act ought to be the once in a generation chance to provide the

legislative framework that mandates for some of that change. As we have said

before the risk is that rather than transform the environment, the BSA simply

overlays more regulation over what already exists. If that transpires to be the

effective outcome, then the future becomes very difficult indeed.

Paul: Alastair, I suppose with BIBA being a key flag bearer for change, what

can we all do to help?

A large part of what we’ve being doing together over the last three years has been to

try to explain, often to non-specialists, a really complex set of issues. Then, most

significantly, clearly illustrating the consequences of doing nothing about them. Hard

data about what was going on within the sector too was (and still is) crucial. Both we

and organisations like the Construction Leadership Council particularly the working

group on PI, have been feeding that data to Ministers. Articulating that has been

m ore than half the battle and we’re grateful for the support of G&A in making our

case. Going forward, only collective and concerted action will secure change. We

have been pleased to work with many industry bodies and will continue to act as a

bridge between those specialists and our colleagues in Government to make the

case for reform.

Paul : Of course, Alastair, the BIBA Manifesto is not just about problems in PI

insurance. There are perhaps even greater challenges in there relating to the

continuing economic uncertainty?

That’s right. Our Manifesto does highlight and reflect a varied range of concerns that

the wider business community have brought to our attention. The final quarter of

2022 saw us undertake a survey of companies at the larger end of SME businesses

and above to gauge what was keeping them awake at night. Unsurprisingly,

economic factors headed those concerns with inflation and a broadening financial

crisis occupying the number one and two slots respectively. Of no surprise to your

clients will be the fact that supply chain disruption and a workforce shortage came in

at numbers five and seven respectively.

Our manifesto was an attempt to both highlight the importance of businesses taking,

where possible, some action to address these risks, but also for us to offer some

solutions as to how they might be addressed.

A key theme running throughout our Manifesto was to voice the concerns of

insurance buyers everywhere about the cost of their covers and the careful balance

between adequate insurance protection and value for money. We found

unquestionable evidence of customers looking to reduce their insurance protection

because of affordability concerns which, given the potential for recession over the

next year or so, leaves those buying certain classes of insurance, such as PI, hugely

vulnerable to uninsured claims. From an economic sustainability perspective, when

the incidence i n PI claims is likely to spike, that is not the time to cut cover unless it’s

completely unavoidable.

Paul: Getting that balance right between business protection and affordability

is a hugely difficult issue and one I know our clients have been particularly

grappling with over the last two or three years. Alastair, what are the areas that

BIBA hopes to address to help out?

I think the first strand is education: helping firms understand the nature of and the

need for key insurance covers along with an understanding on how to make a claim

under those covers. Although I know this isn't a problem for G&A clients, many

SMEs may not benefit from the detailed and tailored advice that you provide. Without

that insight, it’s easy to view insurance as an unnecessary overhead, rather than an

essential tool in the kit of any successful business.

Second, I think there are some very big macro- level issues we’re lobbying on around

the level of Insurance Premium Tax and the personal injury discount rate. IPT in the

UK has grown from delivering £3bn to the exchequer in 2015 to a record £6.6bn

today. At the very least, we need a commitment from Government that the rate is

frozen for the remainder of this Parliament, though we’d like to see some reform of

what is ultimately an indirect tax on business.

Third, the burden of the regulatory environment of business needs to be

reduced. From introducing some element of ‘proportionality’ into the new statutory

‘Protect’ Duty – now known as Martyn’s Law, to cutting the cost of doing business,

there are many areas where Government can intervene to reduce the cost of doing

business in the UK.

Paul: I think you’d find consensus with that opinion around a table of any of

our clients Alastair! What of the future, what does your scan of the horizon tell

us is coming?

I think for us some interesting areas are around the developing class of business

which is cyber cover – just how that is going to develop in responding to new threats

which today don’t exist? There is a huge protection gap at the moment between

exposure and insurance take-up and that is only going to grow. ESG continues to fall

under scrutiny both from investors and employees, particularly the younger

generation, and we all need to be cognisant of the changing landscape in this

regard. Developments in the motor market around automation – while perhaps not at

the forefront of your clients' agendas – will continue to require innovation.

Paul : Craig, any final thoughts on what’s coming down the tracks?

Samuel Johnson said that change, even for the better, comes with inconvenience. I

think the years ahead might see that sentiment become a familiar one as we work

through the unknown thicket of change that the BSA provides, whilst technological

changes continue apace, and industry continues to grapple with necessary

innovations to address climate change.

These challenges aside, I think we have to look at the potential for positives from

each; all of these challenges will present our clients with many opportunities to grow

and innovate, whilst (hopefully) refocusing attention on delivering better quality

outcomes.

Let’s not forget our recent troubles and our clients’ collective responses either. Our

construction clients have, by and large, successfully traded through some of the

most difficult conditions ever seen. With significant insurance cost rises, the

unprecedented crisis of Covid and the impact of the war in Ukraine, there have been

any number of challenges well beyond the normal difficulties of working in the

sector. That the vast majority of our clients are still here and trading well is testament

to their dedication and hard work. That resilience coupled with the many

opportunities ahead should make the next few years an interesting and rewarding

time to be involved in UK construction.

Paul: Well, thank you Alastair and Craig for your insight. 2023 is shaping up to

be a really crucial year for us all and it’s good to hear that substantive

conversations are ongoing at the highest levels to seek a more sustainable

and proportionate future for those active in the sector.

We will of course continue to assist where we can and keep our clients updated as to

the challenges and opportunities that lie ahead.