RICS PII market consultation – Is the feeling mutual? Have your say

When WW1 ended, Britain started rebuilding.

The Prime Minister of the day, Lloyd George, launched a campaign to build 'homes for heroes', due to concern over poor housing standards.  Mass construction ensued with a new form of 'social housing' created, as well as growth in the private sector.  As the housing sector developed, in 1921 the governing body for many surveyors, then known as the Chartered Auctioneers and Estate Agents Institute (CAEAI), but what is now known as the RICS, introduced a requirement for its members to have professional indemnity insurance with various Lloyd's syndicates. 

In the 1970s, the RICS actively called for members to have broad PII cover, both to protect the public and to ensure reputational integrity.  As part of this, a type of mutual master policy was introduced – the RICS Insurance Service Limited (RICSIS).  The policy provided broad PII cover on a 'claims made' basis and included, for the first time, emerging exposures as well as errors and omissions.  Most importantly, the limit of indemnity changed from aggregate to 'any one claim'.  

RICSIS lasted until 1997, after its competitiveness was called into question by members.  The profits were restricted, and premiums had to match claims paid.  Larger firms, with clean claims records, thought they were unnecessarily underwriting those with bad claims histories.  At that time, a more competitive market was created with regulated insurers, adhering to minimum standards, able to underwrite RICS members' PII.  The Assigned Risk Pool (ARP) was put in place for those who could not obtain PII this way.    

In 2007, the obligation to obtain PII from 'member principals' was transferred to RICS regulated firms and this is broadly what is in place today.

PII review

Given the current state of the PII market for surveyors, paying increased premiums for reduced cover, the RICS' Standards Regulation Board (SRB) was keen to discover why measures taken by the RICS over the past 2 years (including changes to the Minimum Policy Wording, ARP and its Risk, Liability and Insurance Guidance note) have not materially improved the affordability and availability of PII cover.  

Last year, the SRB therefore commissioned a review of the situation as it stands in the UK, with plans for a global review at a later date.  The review focuses on the following four key areas:

1. How the RICS can best help support adequate, sustainable, stable and affordable PII for its members.
2. The guidance and other support the RICS can provide to help members secure the requisite adequate and appropriate insurance cover.
3. What information consumers and clients need to ensure transparency of members' insurance arrangements.
4. How the RICS collects and uses the data obtained to predict trends in the PII market, in order better to assess and articulate the risk profile of the profession as well as to help members and stakeholders understand emerging issues in PII availability. 

The review is designed to feed into the RICS' policy development and was supported by an independent report into the PII market. The advisory group considered this, alongside evidence and data from RICS' insurance adviser and the ARP.

Consultation  

The SRB has considered the review's initial findings, including options for short and medium-term solutions to improve the market, which options they put out for consultation.  The RICS is keen to obtain as many responses as possible to ensure any outcome of the review is representative of the UK industry and to understand the impact of the potential changes.  The RICS is calling on all regulated firms and consumers of surveying services (private and commercial) as well as the insurance industry to have their say.     

The short-term solutions open for discussion (which the RICS plans to implement over the next 18 months) include:

• Improving the data collected to better understand the claims made and in which areas; premiums paid; sums paid meeting claims; reserve sums; as well as data held by insurers and brokers to develop its standards and regulatory interventions.
• Improving chances of renewal with the development of a recommended broker scheme which regulated firms could, on a voluntary basis, approach for PII (with an agreed minimum level of service); and incorporating a standardised form to ensure consistent and relevant information which would save time if they needed to approach another broker.  This would also reduce reliance on the ARP.
• Educating consumers and commercial clients on the advantages of using RICS regulated firms; working with lenders for a sustainable working model; and seeking legal advice to learn from past claims and limit future exposure.
• Increasing support for firms and expanding the RICS Risk, Liability and Insurance guidance note to include the whole profession. 
• Exploring amendments to the ARP, which is no longer just a reserve for firms with a poor claims history but also provides cover for firms that may be unable to obtain terms on the open market.  This could include renaming these two groups.

Working with the Government to overcome challenges in the market.             

In the medium-term, the RICS' proposals include:

• Introducing self-insurance, usually achieved by forming a mutual (which a number of architecture firms have established themselves).  Former RIBA president, Marco Goldschmied, suggested this as a solution to the escalating cost of PII cover for architects.  RIBA has now formed a specific council expert advisory group to take action.  However, it is recognised that not all professional mutuals have survived, with the Solicitors Indemnity Fund proving unsustainable.
• Reintroducing a master policy backed by an insurer or a number of insurers.  Whilst the RICSIS was disbanded, this was because it became uncompetitive and unfair.  Master policies can work, as they have for the Law Societies of both Scotland and NI.       
• Maintaining the status quo.  The recent pressures will ease as the cycle continues but reviewing the Minimum Policy Wording and ARP, with a view to making changes, and lowering the insurer security rating, is still a priority.  A consultation on the Minimum Policy Wording is running alongside the PII market consultation and includes questions on excess requirements and negligence cover for secured lending valuations. 
• Launching cover on a project-by-project basis, with run off cover (as used in other construction sectors) for higher risk areas of work.       

Comment

As we said last year, with increasingly unsustainable premiums for some surveyors, they are suffering further pressure as they need insurance to trade.  We have now seen more firms turning to the ARP but, as that cover is temporary, they may be unable to continue if they cannot secure a policy elsewhere.    

The time to act is now!  You can respond to the PII market consultation here or email your response to the questions in the consultation to pii@rics.org.  For the Minimum Policy Wording use the same email address or this link. Act quickly as the consultations close in a few days' time, on Thursday this week, 24 February 2022.   

For further information or assistance, please contact Alex Anderson or Kat Cusack.