In an endeavour to discover AGS Members’ experience with PI insurance and their claims history, the Loss Prevention WG asked all Members to complete a short questionnaire.
The questionnaire was sent to all 125 AGS Members. 41 completed responses were received – 3 of which were from respondents that did not hold PI insurance. These were more or less representative of the Membership. Large companies, however, were slightly under represented (partly because those with group insurance, or in some cases world-wide policies, did not have access to the required data). Personal Members, who appear to have been particularly hard hit by recent increases in premiums, were somewhat over represented.
Figure 1: Respondents compared to AGS Membership
|Membership Type||Response||% responding|
Consultants were predominant among correspondents (34 of the 38 who gave information) but this was not surprising given the nature of the survey. Two-thirds of the consultants undertake both geotechnical and geoenvironmental work. 15 respondents were contractors, but only 4 of these were not also consultants. (It must also be remembered that ‘contractor’ in the AGS can mean those whose primary activity is carrying out site investigations, as well as those involved in remediation of contaminated land, the construction of foundations or other geotechnical work.) Only 5 laboratories supplied information – and all of these companies also engage in either consultancy or sampling activities.
In short (and unsurprisingly), the replies primarily reflect the experience of consultants engaged in both geotechnical and geoenvironmental work.
Limit of Insurance
Even 10 years ago, there was a trend towards ‘aggregate’ cover for geoenvironmental insurance. Reports suggested that this has increased in the interim so Respondents were asked whether their insurance limits were ‘aggregate’ or ‘each and every’. As can be seen from Figure 2 – the trend towards aggregate’ cover is still prevalent – but by no means universal. Geoenvironmental cover is twice as likely to be aggregate but a significant number of policies are still written on an ‘each and every’ basis.
Figure 2: Basis of insurance cover*
|Aggregate||‘Each & Every’|
(* 29 companies held both geotechnical and geoenvironmental cover – sometimes on an ‘each and every’ basis for geotechnical and ‘aggregate’ for geoenvironmental .)
No respondent reported that they had ever been notified that their premium was being increased because of their claims record.
Respondents were asked to indicate the year on year increases in premiums, excesses and turnover for the past 3 years. During this period there were widespread reports of large premium increases, and the insurance industry came up with a number of reasons why this should be so. Insurance industry explanations included the need to cover large claims resulting from losses due to the attacks on the World Trade Centre and the collapse of Enron, the loss of investment income following the stock market collapse, and, as far as the construction industry was concerned, reduced competition following the collapse of the Independent insurance company. The table below indicates how little of the increases were due to increases in turnover. It also indicates that although the rate of increase may now have slowed, premiums have yet to stabilise.
|Mean Premium Increases over the past 3 Years
(compared to increases in turnover)
|Last year||2 years ago||3 years ago|
Word of mouth over the past 3-4 years has indicated that excesses on many policies have risen even faster than premiums. The survey results showed however that only 45% of companies had experienced any change in their excess during the period. Of those that had, some reported increments of 20%-30% year on year – but most had experienced a single large increase of 100% to 500% (and one respondent reported a 1,000% increase!)
More than half of the respondents reported changes to the policy exclusions – mostly relating to asbestos but toxic mould and terrorism also figured prominently.
One of the primary purposes of undertaking the survey was to look at the claims record of the sector. There are two ways that insurers might track risk in the sector – by looking at possible claims notified and by looking at actual claims. Predictably, the claims notified out numbered those paid.
It is clear that many potential problems never come to fruition or are resolved without financial loss. Received wisdom is that insurers are wary of potential geoenvironmental liabilities – but these figures indicate that only 30% of the claims notified in this sector are settled or paid (compared to 60% in the geotechnical sector).
It would have been good to end with some conclusions about the value of claims paid over the last 5 years but the small number of claims reported in the survey makes this impossible. Interestingly, however, the mean value of claims made In each sector is virtually identical.
There is growing evidence that external issues have increased premiums. There is some evidence that geoenvironmental issues are no more likely to result in pay outs than geotechnical issues.