Marsh, the world’s leading insurance broker and risk adviser, predicts that the UK architectural, engineering and construction sector is facing a ‘perfect storm’ which could leave many firms facing increasing risks at a time when the current trend of falling Professional Indemnity (PI) premiums rates may start to reverse.

Marsh warns that the situation is being created as a result of the impact of economic conditions on the sector, which has led to increased competition for work, larger limits of liability being placed on firms by clients and the threat of increased litigation.

In a survey conducted with New Civil Engineer among the UK’s leading consultants and contractors, Marsh found that 56% of respondents have experienced increased litigation against them, and 25% said that the size of the claims were increasing. Despite this more complex risk landscape, the survey found that two-thirds of respondents did not have a dedicated risk manager, and a third did not have written risk management procedures in place.

John Doe, a Senior Vice President in the Financial and Professional Practice at Marsh, commented: “PI insurance can be the third highest cost after employees and premises for many firms and it is tempting to cut back on cover when money is tight. However, as the findings of our survey demonstrate, litigation tends to increase during recessions as businesses look for ways to avoid payment.

“Insurance premiums are based on firms’ track records and claims histories. This means that some companies might find themselves in a situation during the recession where their fee incomes are down, their insurance costs are on the rise and they are operating in a riskier environment than ever before. This is the ‘perfect storm’.”

“Premium rates for consultants and contractors in the construction sector are still relatively low, due to insurer competition and substantial capacity for PI cover. Good risk management and a more sophisticated approach to insurance broking are key to securing a better deal on PI cover, but it is concerning that only one third of respondents in our survey have in-house risk expertise.

“There is every reason for firms both large and small to proactively manage their risk. Marsh’s advice for consultants and contractors is to realistically evaluate the risks they’re exposed to in the current climate, examining every aspect of what the firm does. By doing this, they will have a clearer understanding of the risks they face and have more control over the vagaries of current market conditions.”