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'High risk' construction faces soaring insurance premiums

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INSURANCE PREMIUMS for engineering and construction firms face massive cost hikes as insurers increasingly walk away from the sector, leading brokers said this week.

The warning coincided with news from the Association of Consulting Engineers (ACE) that a 50% rise in premiums was vital to ensure the survival of its professional indemnity scheme.

Turmoil in the insurance industry, heightened by the impact of September's World Trade Center attacks, is cutting the number of insurers willing to cover construction. The industry is now seen as a high risk sector.

However, construction skills shortages and the 'diminished profile' of the engineering profession are also being blamed by the ACE for insurers loading premiums. Insurers fear that a drop in skill levels in the profession will increase the risk of claims.

This sentiment is reinforced by a separate but equally bleak report on construction by broker Willis. This reports that, as a result of the new fears, premiums will rise by 40%-50% this year. Claims will have higher charges deducted and policy conditions will be stricter.

The report explains that because insurers have continued to lose money on construction, many are leaving the sector.

Those left will charge more for higher risk.

'[Insurers] will be reluctant to offer quotations without full and detailed information, ' warns the report. 'They will be very selective. Heavy civil engineering. . . is also likely to see substantial rises since capacity for these types of risks has already been reduced and will fall further.'

The view was echoed by Griffiths and Armour (G&A), broker for the ACE. G&A partner Stephen Bamforth said: 'Rates are going up by at least 50%. The last time this happened was the mid-1980s.'

He added that some firms with bad claims records might not be able to find cover, and that the number of 'credible' insurers for consultants had dropped by around 50% to 10 in two years.

The ACE has written to its 1,300 members warning that premiums for its professional indemnity scheme must rise to keep the scheme going. Firms which generally pay around 2.5% of turnover will face a rise of 1.3% or more depending on claims history.

The skills and experience shortage in the profession has reduced fees from clients, further increasing the perception by insurers that the sector is high risk, the ACE letter notes.

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