As one building control firm files for liquidation after failing to secure insurance, putting 12,000 building projects at risk, the industry warns urgent changes are needed to make the risk insurable 

The Association of British Insurers (ABI) has said “urgent reforms” are needed to provide insurers with greater confidence when underwriting professional indemnity (PI) cover for building inspectors.

Insurance Times yesterday revealed approved inspector Aedis Regulatory Services was forced to file for voluntary liquidation after being unable to renew the compulsory insurance policies it requires to operate.

Howden had arranged the policy, but after its insurer pulled out of writing PI, it left ARS unable to secure new cover. Two other approved inspectors are understood to have also had their Howden-brokered policies already expire, with 11 more firms due to have their Howden-brokered policies expire within the next three months. 

ARS carried out building control on 12,000 building projects, putting all of these at risk.

Along with seeking a new insurer for clients, Howden revealed to Insurance Times it has been in communicating with the government for months about the situation. It recently submitted a detailed proposal for changes to the current strict insurance criteria, which it said ”have not been modified to account for today’s challenging conditions”.

Urgent reforms

The ABI too has been in communication with the government about the current rules. As the insurance market moves to reflect changes in risk, Laura Hughes, general insurance policy manager at the ABI, told Insurance Times “urgent reforms are therefore needed to provide insurers with greater confidence when underwriting this type of policy”.

“In the meantime, the ABI is liaising with MHCLG [Ministry of Housing, Communities and Local Government] in response to concerns about the availability of cover for building inspectors,” she added. 

“More than two years since the devastating Grenfell fire, the country is still operating under a system which Dame Judith Hackitt [British engineer and civil servant, chair of manufacturing body Engineering Employers’ Federation] found to be ’unfit for purpose’ in her review.

“The Government’s rules around how this cover works are very prescriptive, something they could change, or the Government could step in and provide interim cover of its own.”


The insurance criteria required by approved inspectors was revised in June 2017.

A Department for Communities and Local Government document shows that revisions included removing the restrictions on what can be claimed for under the run-off cover and the length of run-off cover, and changes to the maximum deductible.

Matt Hodges-Long, chief executive and founder at consultancy TrackMyRisks said the changes made it no longer commercially viable for insurers to provide the cover.

He added: “It leaves society with a problem, if [for example] 30-40% of building inspection work is done by private companies and those companies can no longer operate because they cannot get Professional Indemnity cover the question is how do you avoid things grinding to a halt? 

“This is a massive issue that was brought into the fore by Grenfell Tower.

Potential impact

Charles Manchester, chief executive at Manchester Underwriting Management (MUM) believes that PI in the construction industry is difficult right now.

“The Grenfell Tower tragedy has woken everybody up to what I have been told is a lack of clarity in building regulations in the UK. One can argue that the evidence has been there for a lot longer but the bottom line is that insurance is about transferring the risk of something happening, not paying for the inevitable,” he said. 

“The problem here is that we know that there are problems and this is exacerbated by the long soft market years that led to most PI insurers running at losses, particularly in the construction industry.

“We know that there are buildings in use with safety issues and cleverer people than me will get to decide who is responsible. One thing is for sure and that is that there is a lot of pressure from the public for those responsible to be held accountable, given the tragic loss of life at Grenfell Tower and before that Lakanal House and the potential for future loss of life, and public pressure turns into political pressure.”

Financial implications

But Manchester said there are also massive financial implications for the cost of making buildings safe and this is not limited to low budget high rise.

“Architects, engineers, contractors, fire safety consultants, specialist sub-contractors, building materials manufacturers and many more will inevitably get caught in the crossfire and will incur massive costs even if they are blameless,” he said.

“This makes it difficult for insurers, as it is the inevitability of loss in certain areas that makes it impossible to insure the exposure, which is no longer a risk but a racing certainty.

“And this is nowhere more obvious than in the case of approved inspectors, whose job is to ensure that new building works (whether on new or existing buildings) meet the building standards.

“This work is now in the private sector when it used to be done by local authorities. The construction industry is working under budgetary pressure, particularly with social housing, and with historically difficult building regulations.

“And it can be argued that it now polices itself. Claims will arise against approved inspectors using 20:20 hindsight.

“MUM has never looked to write this particular profession because the insurer is being asked effectively to guarantee that the building meets regulations and, in my opinion, no rate that we could charge the approved inspectors would generate enough premium to take that risk. That difficulty has become even more of a challenge in the current highly charged, febrile environment.”

Creative solution?

Manchester explained that PI insurers have addressed this issue by applying a variety of exclusions relating to combustibility of buildings.

He said: “Some professions have minimum PI requirements that don’t address the issue, such as RICS (Royal Institute of Chartered Surveyors) members and solicitors, and I would expect that the market for these will become more difficult such that the minimum requirements will have to change to ensure continued availability of cover.

“This leaves a gap that is hard for insurers to fill. As with flood or terrorism, maybe it requires a more creative solution.”