Govt Backed PI Insurance for Flat Assessments Expects £100m+ Claims

CLAIMS EXCEEDING £100 million are expected on a government-backed professional indemnity (PI) insurance scheme launching in September 2022 to back high-rise building assessments and sales.

The scheme is designed to break the deadlock for owners of flats in high-rise buildings with unsafe cladding who cannot sell their homes because the banks providing mortgages on them fear the cost of replacing the cladding will make homes valueless.

PI Insurance

Now, the government has entered into commercial arrangements with a selected insurer who will be offering indemnifying policies to qualified professionals so that claims on any flats they have assessed with dangerous cladding can be paid.

The launch of the scheme will lead to claims costing £100m+ on the sale of flats in thousands of high-rise buildings, according to the Government Actuary’s Department (GAD) who helped design the scheme.

GAD Project Lead and actuary Jacqui Draper, said: “We have estimated that claim costs will be £100 million, although there is no theoretical cap on the total size of claims that could be made.

“We also advised DLUHC on the level of premiums needed to recoup the expected claims and operating costs.”

EWS1 Assessments

The scheme has come about following the Grenfell fire in 2017. After the tragedy, mortgage lenders became reluctant to lend to buyers of flats in high-rise buildings, and sales stalled.

To provide assurance, a building industry group led by the Royal Institution of Chartered Surveyors, introduced the External Wall System (EWS1) assessment process in December 2019.

An EWS1 assessment is undertaken by a qualified professional surveyor to indicate whether remediation work, such as removal of cladding, is needed on a high-rise building. However, many qualified professionals found they could not obtain professional indemnity insurance to cover their assessments.

The Department for Levelling Up, Housing and Communities (DLUHC) subsequently developed proposals for a government-backed professional indemnity insurance scheme for EWS1 assessments. GAD provided support to the DLUHC for the design and pricing of the scheme.

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