If the current booming property market crashes, insurers could be hit by a flurry of professional indemnity claims against valuers.

Property litigation expert Paul Lowe of Rosling King said a slump, or even a levelling out, in the property market has historically been accompanied by a rise in claims against property valuers.

In law, valuers are given a limited margin of error, but can be pursued for damages if they step outside this acceptable margin.

"Property price inflation masks over-valuations and sales at inflated prices by swallowing up the valuers' margin of error," Lowe said.

"If property prices fall, losses increase and mistakes by valuers are exposed."

He said the last market peak similar to that being experienced now was in the late 1980s.

Property prices started to drop in 1989, plummeted in 1990 and declined slowly in 1991 and 1992, before stabilising in 1993.

"If the economic pattern from 1990 to 1993 were to be repeated in late 2002, 2003 and onwards, it's the valuations that are being carried out now and in the next 12 to 18 months that will be exposing insurers to the greatest losses," he said.

Lowe said it was unlikely the property market would fall as it did in 1990, but that any localised fall or levelling out of values could be exacerbated by unemployment problems, increases in tax burdens and interest rates.

He said underwriters could use a number of risk management techniques to minimise their risks.

These include setting limits on the geographical area in which the valuer operates, considering auditing valuations and restricting the valuers' access to the purchase price or mortgage amount.

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