30 June 2025
Construction Professional Indemnity Market Update H1 2025
We comment on the current market conditions and concerns, coverage restrictions and rate changes in our latest Professional Indemnity (PI) market update for the Construction sector.
Market softening and increased competition
Throughout 2024 and H1 2025, the professional indemnity market (PI) for construction-related professions has continued to soften in the UK at a pace faster than many commentators had anticipated. This softening is driven by increased capacity and a strong desire for growth among insurers, particularly for excess layers, leading to heightened competition. As a result, significant rate reductions and a loosening of coverage restrictions, particularly concerning fire safety and cladding, have been observed.
Financial performance and strategic shifts
PI insurers and the broader Lloyd’s markets reported increased profits in 2023 and 2024, due to remediation efforts over the previous 5 years. This financial stability has allowed insurers to remove some of the regulatory constraints imposed after the Lloyds ‘Decile ten’ review, shifting their strategy from remediation to growth. Consequently, insurers are now focusing on premium growth and deploying more capacity on well-performing individual risks.
Market dynamics and coverage
Impact of Grenfell Tower Inquiry and legislative changes
The phase two report of the Grenfell Tower inquiry, along with associated legislative changes, has been a significant development in the construction sector. The report highlighted various failings, including inadequate guidance on compliance with Building Regulations, negligence by involved companies, and poor material choices regarding fire safety. However, these findings were anticipated, and the introduction of the Building Safety Act 2022 has already addressed many regulatory failings. Therefore, the report is not expected to alter the current trajectory of the PI market, which is expected to continue softening.
Coverage and underwriting attitudes
While exclusions may still apply to historical projects, contractors and their supply chain can expect at least aggregate limits on a go-forward basis. The RICS (Royal Institution of Chartered Surveyors) minimum terms now mandate coverage for buildings of five storeys and above, effective from July 1, 2024. This change is welcome, and contractors should be challenging their supply chain parties who do not have appropriate levels of cover in this area.
Rate changes and market dynamics
The improvement in the rating environment throughout 2024 has continued apace in H1 2025, with well-performing firms securing meaningful rate reductions. Rate changes depend on several factors, including risk profile, claims activity, and the volume of cladding and fire safety-related notifications. Increased competition, especially for firms willing to take appropriate levels of self-insured retentions, has resulted in more favourable renewal outcomes.
Cladding and fire safety
The market has widely adopted the IUA Cladding and fire safety restricted coverage clauses. However, some firms continue to face increased levels of per-building retentions on legacy projects as insurers seek to minimise exposure to new notifications arising from the Building Safety Act 2022. Despite this, there is increased availability of cladding and fire safety cover, including extensions to the retroactive date for firms previously subject to exclusions for combustible cladding and fire safety claims. In addition, reduced forward excesses are available to firms that are able to demonstrate robust fire safety risk management. Coverage remains limited to a negligence trigger, a single aggregate limit, excludes consequential losses, and per-building excess.
Market concerns and financial health
Contractor and supply chain insolvency continues to be a major concern for the market. Despite the construction material price index stabilising in the last 12 months, many firms continue to experience financial strain due to thin operating margins, leading to higher insolvency levels. Recent high-profile insolvencies, such as ISG, underscore the severity of the issue.
Insurers are increasingly scrutinising firms' financial health and liquidity, as well as their ability to manage these challenging conditions. This includes a focus on firms' strategies for securing contractual protection against price inflation and ensuring sufficient contingency in their contracts. Insurers are also paying closer attention to firms' proactive measures in reviewing the financial strength of their supply chain, aiming to mitigate the risks associated with contractor and supply chain insolvency.
Regulatory impact and precautionary notifications
The Building Safety Act has extended the limitation period from 6 years to 30 years under the Defective Premises Act 1972 and the Building Act 1984. Firms have expanded their past project reviews to include all relevant buildings constructed or refurbished over the last 30 years, leading to new precautionary notifications from main contractors. Insurers have adopted a more critical view of cladding and fire safety cover for projects completed prior to changes in Building Regulations in December 2018, requiring firms to evidence the extent of past project reviews for buildings above 5 storeys/11m in height.
Conclusion
The last 18 months have seen a marked improvement in market conditions compared to the previous 5 years. Insurers are now focusing on premium growth and deploying more capacity on well-performing risks, indicative of softer market conditions. However, the market remains cautious towards cladding and fire safety-related exposures, which continue to impact the construction industry. The increased competition has resulted in rate reductions of 15% on average and up to 25% for well-performing risks with year-on-year growth in turnover. Despite these improvements, the market continues to exercise caution in the policy terms and conditions in respect of Cladding & Fire Safety cover for legacy projects and the financial health of firms due to industry-wide low profit margins and supply chain challenges.
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Disclaimer
This information is not intended to constitute any form of opinion or specific guidance and recipients should not infer any opinion or specific guidance from its content. Recipients should not rely exclusively on the information contained in the bulletin and should make decisions based on a full consideration of all available information. We make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.
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