Graeme Tinney Director, Griffiths & Armour Professional Risks
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Transcript of Graeme Tinney Director, Griffiths & Armour Professional Risks
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Graeme Tinney
Director, Griffiths & Armour Professional Risks
Building Control (Amendment) Regulations 2014
An Insurance market perspective
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Agenda
• The discussions to date:• Developments in the insurance market• The underlying causes of PI claims• Insurers’ reactions to the emerging picture on BCAR
• Where we go from here:• Good practice• Professional Indemnity Insurance• Latent Defects Insurance
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20012002
20032004
20052006
20072008
20092010
2011 2012
- Independent Insurance Co - 9/11 terrorist attacks ($39.5BN) - US Stocks lost $1.4TR in one week
- Turbulence in investment markets- Dotcom bubble- Enron bankruptcy
- UK OFT report 10 year losses for liability Insurers
- Recovery in World Economy- Earthquake and Tsunami in SE Asia
- Hurricane Katrina
- Lloyds achieves CoR 83.1%- Uncertainty in the Economy
- HSBC warn of sub-prime losses- Paribas reports 'Evaporation of Liquidity'- ‘Run on the Rock’
- Lehman Bros bankruptcy- AIG bail out- RBS rescue in UK
- $787BN stimulus approved in US
- BoE announces £150BN QE
- Quinn placed in provisional administration- Ireland requests support from EFSF and IMF
- Natural catastrophes in Australia, NZ, Japan and the US- Lloyds announce costliest year for natural disasters- Ireland introduces Insurance Compensation Fund.
$81BN property damage loss
Insurance Market Performance
A Decade Defined by Natural and Man-made Catastrophes
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Claims traffic – Construction PI
€ -
€ 5
€ 10
€ 15
€ 20
€ 25
€ 30
€ 35
€ 40
Billion
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
Year
Construction Industry Output
Ireland: Number of claims reported -v- 10 year average
70%
80%
90%
100%
110%
120%
130%
140%
150%
10 Year Average
2005 2006 2007 2008 2009 2010
-25%
-10%-3%
+44%
+31%
+44%
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Claims – Underlying Factors
• Blame culture
• Fee disputes
• Last man standing
• Corporate memory / records
• Costly legal system
• Limited brief
• Design changes / ‘Value Engineering’
• Onerous contract terms
• Uncertainty on scope of services
• Certification
Economy/Environment Recurring Themes
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Claims – Underlying Factors
Evidence of ‘poor standards’?
• Yes – particularly with certain small to medium firms
• Questions surrounding capabilities and qualifications
• Project profile and client type was a major factor
Principal issues going forward
• Economy
• Fee levels / Procurement
• Doing more for less under increasingly onerous contracts
• Ability to fund risk
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BCAR
Insurers’ reactions to the emerging picture
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The Regulations – Insurer Reaction
• Interests aligned:– Improved standards– Transparency and accountability– Recognition of design input– Efficient use of building control resource
• Are the obligations reasonable, fair and within the control of the parties?
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Code of Practice
Media reports
Senior Counsel Opinions
Ancillary Certificates
Document for Public
Consultation
2012 - Draft Regulations and
Certificates
2014 - The RegulationsAnd final certificates
ProcurementGuidance
Revised CoE
(imminent)
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• Insurers’ hope is that the Regulations will support a culture of compliance
• Improved paper trail – lodgement of plans and documents
• Inspection regime and input of construction professionals
• Amendments have addressed many of the earlier concerns
• Recognition of accepted duty of care (Certificates & CoP)
• Reliance on Ancillary Certificates
• Greater clarity on scope of AC’s role in CoP
• Construction Industry Register
• CoP addressing issues such as referral of disputes and change of AC
Where are we now?
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• Interpretation of Regulations/Certificates
• Reliance on the Completion Certificate and potential claimants
• Will the Assigned Certifier be exposed to claims?
• Rights of recovery against other parties
• Consideration on Inspection Plan – appropriate intensity / frequency
• Ancillary Certificates
• Conditions of Engagement / Scope of Services
• Resource and remuneration
Some remaining concerns
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Where we go from hereGood practice and effective insurance solutions
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• Contractual liabilities:
– Duties
– Net Contribution
• Competence
• Scope of Services
• ‘Know the Code’
• The inspection regime – guidance from professional bodies
• Adequacy of fees / resources
Good Practice
Key considerations
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• Maintain good records and follow up oral advice in writing
• Document Inspections
• Retain notes of meetings, conversations, instructions etc
• Retain copies of Certificates and relevant CoP
• AC – confirmation others have undertaken inspections according to Plan
• Be clear that you are relying upon others’ response and Certificates
• Documents retained ‘sufficient’ to demonstrate compliance
Good Practice
Records
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• Compulsory Certificates• Read it;• Understand it;• Consider the seriousness of it;• Accept likelihood recipient and third parties will rely upon it;• Then, ONLY IF SATISFIED, sign the Certificate.
• Do not release Certificate based on an undertaking from others to do certain actions.
• Senior management approval process on ‘Undertakings’ and ‘Certificates’
• Ancillary Certificates – standard forms.
Good Practice
Certification
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• Cover afforded under our main facilities
• You need to clarify extent of cover with Broker/Insurer
• Full and accurate disclosure
• Insurers’ support and appetite to defend claims is crucial
• Claims made nature of cover
• Long-tail nature of claims
• Early reporting
Professional Indemnity Insurance
The operation of cover
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Professional Indemnity Insurance
Under Reserving
Under Pricing
Catastrophes
Entry into New Areas
DelegatedAuthority
RapidExpansion
Reinsurance
UnforseenClaims
The Atomium of Insurance Company FailureInsurance Company Failure, Massey et al, 2002
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Latent Defects Insurance
Litigation
• A right to sue is not a guarantee of restitution
• Process is protracted, costly and inefficient
• If it’s broken, fix it!
Minister for the Environment, Community and Local Government4th April 2013
‘…keen that the issue of insurance of construction projects is addressed…I am therefore undertaking a review of construction project related insurance’
Latent Defects Insurance (LDI)• A first party material damage non-cancellable policy• Repairs are funded on proof of relevant damage, without proof of fault• Technical audit/inspections during construction• Broader policy coverage –v- Home Warranty cover• Possible waiver of subrogation
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Managing Construction Risk
LDI: Statutory or Discretionary?
• Experience of Home Warranty Providers?
• Would statutory requirement encourage insurer support?
• Can we rely on long-term insurer support?
• Can we have complete confidence in pricing models?
• Can the market bear the additional costs?
• Will a waiver of subrogation support wider objectives?
Of course, any form of insurance should be viewed as the ultimate safety net. The focus has to be on changing behaviours and promoting a culture of compliance. Whether the Regulations achieve that is something Insurers will be watching with interest.
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Thank you.
Graeme Tinney
Griffiths & Armour Professional Risks
www.griffithsandarmour.com
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