LOW FEES and price undercutting could be helping to increase the cost of insurance premiums for consultants, according to Association of Consulting Engineers (ACE) insurance broker Griffiths & Armour (G&A).
'There is concern among some insurers that low prices can mean low quality, ' said G&A partner Stephen Bamforth.
The insurance market has 'hardened' significantly over the past year because of fears of a global economic slowdown, the 11 September attacks and the collapse of Independent Insurance which offered cheap construction insurance.
'In the past, insurance firms were writing policies purely to bring in income.
Now they are writing for profit, ' said Bamforth.
'Underwriters are looking much more closely at the risks involved with particular companies, ' he said, adding that low fees can be a factor.
A leading construction lawyer also voiced concerns about low fees. 'It always surprises me that insurers are prepared to provide relevant cover to consultants and contractors who put in the lowest price.
'The firm with the lowest bid doesn't always deliver the best quality. Insurers should ask if a firm is able to deliver if a price is abnormally low, ' said Specialist Engineering Construction Group chief executive Rudy Klein.
Premiums for the ACE's membership insurance scheme rose by an average 50% for this year to around 3.8% of a consultant's turnover. Firms with a poor claims history are being charged much more, with some seeing their premium costs doubled.
A forecast report for 2002 by insurance broker Willis says demand for construction insurance will not diminish, but the number of firms providing it will because many have lost money in the past.
Premiums are also being pushed up by there being fewer players in the market.
To help ease the problem, the ACE and G&A are advocating project based insurance instead of firms taking out their own cover.
'All participants in all projects are providing some kind of policy - they often overlap and they are all catering for the same risk. Projects are over-insured which is a luxury we can do well without, ' said Klein.
The ACE says that each construction team member having its own insurance encourages litigation and legal expense, with around £5M incurred in 'legal and forensic' costs for every £1M recovered in damages.
A project based approach would avoid this, the ACE maintains. An assessment of the risk to be borne by firms in a project should be made at the outset, with each contributing to the overall insurance cost proportionate to the risk taken and ability to shoulder it.
Bamforth says there is initial interest 'at the quality end of the market' in this approach, but that the government should take the lead in developing the project based approach.
Linking it to the issue of low fees, he adds: 'Surely the government has an interest in developing a sustainable industry - otherwise how will it deliver the hospitals, roads and infrastructure it promises and attract the engineers it needs to do the work?'