Surveyors face rate increases of between 10% and 100% for their professional indemnity insurance following a four-fold increase in claims notifications over the past 12 months, according to Marsh, the world’s leading insurance broker and risk adviser.

David Stocks, a Senior Vice President in the Financial and Professional Practice at Marsh, explained: “Commercial and residential property values in some sectors in the UK have halved over the past 18 months. Banks and lending institutions are now challenging the valuations undertaken by their professional advisers as they seek to recoup some of the write-downs from their commercial and residential lending portfolios.

"The dramatic increase in claims notifications has affected insurers’ appetites to take on surveyors’ professional indemnity risk, meaning that there is less capacity in the market than 12 months ago. Rates are now extremely variable and depend largely on the types of risk and claims records of the surveyor, and its ability to demonstrate the robustness of its risk management systems and procedures. Insurers are being much more selective, as they are trying to avoid a repetition of the fallout from the last property downturn in the early 1990s.

"Given the current situation, many larger firms are being forced to take higher levels of self-insurance. We are receiving more enquiries from surveyor firms looking to set up their own captive insurance companies.

"We are also now seeing a significant uptick of claims allegations of fraud and/or dishonesty. Organised crime groups targeted the lending market between 2000 and 2007 and whilst the majority of fraud was perpetrated in the residential sector and involved self-certified and sub-prime products with high loan to values, several commercial frauds have resulted in huge insured losses.

"For some firms, the fraudulence and/or recklessness of one individual can destroy a firm’s reputation and lead to it not only paying increased PI premium levels for many years, but also having to spend a huge amount of time and resource dealing with the fallout from such an incident. Firms need to pay more attention to their total cost of risk and ensure there are high levels of training and risk awareness throughout their organisations to mitigate against such risks, and to protect the business and the employees.”

Commenting on the PI insurance market for small and medium-sized businesses, Ian McCallum, FINPRO National Practice Leader at Marsh, said: “Surveyors have been hit particularly hard by the economic downturn and the PI market for small and medium-sized surveyor firms is very fragile at the moment.

"A two-tier system is currently in operation: insurers are trying to increase premiums at renewal for existing business, but are cutting their prices quite dramatically for new business; while some smaller firms are selecting PI cover based purely on price.”