In the past 12-18 months, PI insurance premiums have risen to a level where engineering businesses are expected to pay increases of up to 20% on their bills. Many insurers are now also refusing to quote for occupations and businesses that are deemed as high risk.
Reducing risk with the aid of professional practice guides
In an effort to help protect engineers and provide updated guidance, volunteers with the Engineers Australia Society of Fire Safety published the Practice Guide for Façade/External Wall Fire Safety Design.
The guide provides working engineers with practical advice on how to address the potential hazard of fire spreading through the facade of existing buildings.
Industry, insurers and brokers, including EngInsure, are now encouraging engineers to adopt the guide so they can protect their indemnity, particularly for fire engineers who are exposed to high levels of risk.
Causes for the new PI insurance environment
Over the past year, global insurers have left the PI insurance market (including a number from the overseas Lloyds of London marketplace). This is due to insurers facing unsustainable losses on claims over a long period of time, and from the recent cladding crisis seen across the globe.
Michael Giansiracusa, CEO of insurance broker Whitbread and partnering broker for EngInsure, says because PI insurance has performed poorly for insurers in recent years the market has shrunk.
“Over time the PI market in Australia just hasn't been performing well; it's actually been a loss-leading product,” he says.
“We've just got to a point in the cycle where it is coming into what we call a hardening market, where premium rates are going up in an insurance market with less capacity and less competition.”
Mr Giansiracusa says while premium increases have been compounded in Australia by the cladding crisis, it is an international problem at its core.
“The reality is that it's not just an Australian issue when it comes to PI insurance, it's a global issue,” he says.
“When we try to sell our risk back into international markets that have also been affected, the insurers say ‘no, no, we already know what's going on and we don't want that risk.’”
Experts say premiums aren’t expected to drop for at least for another 18 months to two years as big insurers see continued losses and apply exclusions, or back out of the PI insurance market.
Despite the international impacts, the ongoing cladding crisis at home is still a major concern for many in building professions, particularly for building surveyors and certifiers, who are reportedly facing unaffordable bills.
A complex issue with no easy solution
State regulators have allowed businesses to continue operating with certain cover exclusions around cladding, but it’s just a short term fix.
Chair of Engineers Australia’s Society of Fire Safety and managing director of consultancy firm Basic Expert Pty Ltd, Dr Jonathan Barnett says while he expects premiums to stabilise, cladding exclusions continue to cause problems for engineers in the industry.
“Not many people know or understand the issues that are happening. If cladding is excluded and there’s a fire that occurs in that building, then an engineer could lose their business,” he says.
Dr Barnett says in applying safety regulations, Australia’s modern building codes still need historical evidence to determine how safe certain building materials are.
He says engineers don’t have the data on how some of these new materials behave in certain conditions.
“We don't want more than a probability of, say for example, one in a thousand of someone being injured or killed due to material catching fire. But these materials are new. We don't actually know what their fire properties are, and we don't actually know how they're going to behave,” he says.
A recent EngInsure case study reviewed the outcomes of legal action against the builder of Melbourne’s Lacrosse tower in the aftermath of the 2014 fire.
The judge in the case found fire engineers involved in the project held the highest proportion of liability for the disaster at 39%, while the building surveyor held 33% and the architect just 25%. The builder as the head contractor held no liability.
In the face of so much risk, EngInsure is also encouraging engineers to notify their insurer or broker of “any known circumstances that may give rise to a claim, prior to the expiry of the current policy”.
The Society are also working with the Warren Centre for Advanced Engineering on developing research to help inform fire safety regulations.
For now, the Society will continue to work closely with members and engineers to help find brokers or insurers who offer PI insurance that’s appropriate for their line of work. At the same time, Engineers Australia and the Society will keep working with institutions and industry to find solutions to a problem that isn’t going away any time soon.
For more information about the the current PI Insurance issues, visit the Engineers Australia website.