Recession hits construction firms hard

Construction firms are suffering as the recession has “really hit home in terms of this part of the market”, said Insurance Times editor Katie Scott, speaking as part of Markel’s panel entitled How the professional indemnity (PI) industry is responding vs. what is needed held last week (19 October 2022).

Scott was joined by Richard Brooks, broker development director at Markel UK, and Ross Dingwall, managing partner for the North and Scotland at insurance advisory Partners&.

One element exacerbating inflationary factors in the design and construction sector is the fact that cover price rises have been “double-digit and more”, due to “unsustainable” or “irresponsible pricing” in the past, said Brooks.

If construction firms choose to reduce their level of PI cover to mitigate these rising costs it could have a “knock-on effect in terms of the projects and work that they then take on, in terms of what they’re actually insured to do,” said Scott.

She continued: “If they have to refuse work, for example, because of the cover that they have, that could then have an impact on their solvency as a business and they might have to fold if they’re a particularly small firm.”

Rising costs for PI cover come as high energy prices, elevated inflation, rising interest rates and economic weakness are expected to cause the UK to remain in recession until the middle of 2023, according to UK economic forecasting firm EY Item Club’s latest Autumn Forecast, published 17 October 2022.

Challenging clients

To help construction and smaller firms, Markel’s panel highlighted that customers need help in understanding what PI cover is and how insurance can benefit business.

One way that Partners& is hoping to support clients to obtain cover during the economic downturn is by challenging its clients.

Dingwall explained: “We are trying to have a slightly different conversation with clients.

“[For example] what are the issues that are keeping you awake at night? Really challenging their understanding of the insurance that they’ve been buying and rather than just looking at it solely as we’re here to facilitate an insurance transaction, we’re here to protect the resilience of their business.”

Scott, meanwhile, highlighted that the insurance market is cyclical and so pricing “peaks and troughs” are expected.

However, Scott added that this was not the case for the end customer, so “clarity of understanding” was key.