Q Thank you all for coming today. I was particularly struck by a statement in the ABI’s written evidence:
“Although the frequency of fires over the last 10 years has decreased, insurers have seen a significant increase in the damage and costs from fire spread”.
I do not believe we have heard that from anyone else in our evidence so far. I wondered whether you could tell us a little more about that, particularly in terms of what kind of emergency status fire remediation should have attached to it and what the impact of the increase in damage and costs has had on the insurance industry and on leaseholders.
The insurance industry has been calling for a significant period, including well before Grenfell, for significant reform to the building safety regulatory framework, including in terms of fire safety. Over the last decade, we have seen a reduction—with the exclusion of Grenfell, obviously—in the overall number of lives lost in fire. I think the Government statistics will bear that out. Over the same period, however, the insurance industry has seen a significant increase in the overall cost of fire claims, including but not exclusively from residential buildings.
If I include all commercial fires—in warehouses, commercial premises and residential building blocks, for example—there has been a significant increase in the cost of fire, but we suspect that one of the reasons for that is that, as we now know, fire spreads much more quickly than had previously been anticipated in the context of such things as modern methods of construction, including all the issues that you have been hearing about in the context of cladding in particular, and wider fire safety defects that we have found in the post-Grenfell world.
Q As a supplementary, could you comment on the second part of my question, which was about the impact that this has had on the industry, and on the insurance costs facing leaseholders?
The significantly increased cost of fire is obviously passed on to all premium payers through increased premiums. For leaseholders in the post-Grenfell world, there have been very significant increases in the cost of insurance for some of the buildings that have been identified as most at risk.
I and the insurance industry particularly empathise with all leaseholders who have been affected, and we have worked hard to ensure that where buildings have not been able to access insurance, we have tried to facilitate insurance. The sad reality is that, in the absence of a quicker remediation programme, those leaseholders will continue to face increased insurance premiums.
Q Just a quick supplementary, because I will have to go shortly. You said that the fires that have happened have spread a lot faster in residential buildings in recent years. Is that a UK issue or is that an international issue in similar types of buildings?
I would say that it is not just residential; it is in a number of buildings. If you think about the significant increase in online shopping, for example, which has driven the development of very large non-compartmentalised warehouses: those are very significant fire risks because they lack the structures internally. It is a problem that the insurance industry is cognisant of both here in the UK and internationally.
Q Comparing residential buildings in the UK with those in other countries, have new forms of building internationally seen this growth in high-speed fires, or do we have a particular problem in the UK?
I am not aware of issues in other jurisdictions. It is not fair to talk about the UK as a whole, because Scotland has a different regulatory framework, but I am aware that in the UK there are policy issues that we as an industry have long been calling for—for example, the mandatory installation of sprinklers in all new buildings, but particularly those that house and protect the vulnerable such as schools or care homes. Frankly, it is beyond belief that it is not mandatory to include sprinklers in those buildings when they are newly constructed. I am conscious that I am probably not answering the question, but I do not have any information and I would not want to mislead you. I can follow up in writing with research done by colleagues, if that would be useful.
I thought you might be sick of hearing from me!
Let us start with what is good about the Bill. I think there is a lot in the Bill to welcome in the context of Dame Judith Hackitt’s golden thread of information. The devil will be in the detail, so we await with interest the secondary legislation that will underpin the Act. A lot of the technical detail is going to be there, and our industry along with many others will want to analyse and scrutinise that legislation.
What is missing from the Bill? If I am honest, we do not understand why the framework does not apply to buildings under 18 metres. Fire does not affect just those in buildings over 18 metres—it affects all buildings. Some of the most egregious examples of buildings that have been covered in cladding, with woeful fire protection mechanisms, are under 18 metres. We certainly think that the Committee should carefully consider applying the provisions of the legislation to buildings under 18 metres.
I would support what James said. There is a lot that is good in the Bill and the NHBC supports the principles of the Bill. In terms of what is missing, it places a single Building Safety Regulator across the whole sector, private and public, and we suggest it is important that the regulator appoints to building control bodies on the basis of competence—not whether they are from the public or private sector. That is an area we are concerned about.
We welcome the single regulator, but please appoint to building control on the basis of competence; otherwise, there could be real issues in terms of capacity and confidence in the sector, which might slow down new home building and potentially lead to less safe buildings. From the previous session, and reinforcing what James said, there is still quite a lot of detail to work through in the secondary legislation. That includes details around accountable persons. Given all the people involved in the design and construction phases of developments, particularly complex developments, we should work harder to get accountabilities clear where we can. There is more to work through on product certification as well, but someone on the panel will be more of an expert on that than I am, I suspect.
We welcome the Bill, but there are a few areas that need to be worked through to get it right. The principle should be to build right first time to avoid these issues. There are big structural challenges in the industry to do that, and that is where the focus should be.
I would agree with the previous panellists: it is a welcome Bill with a lot of good frameworks and overarching challenges within it. We would all agree that, as practitioners, the devil will be in the detail as to how that actually comes into place. Going forward, we welcome the introduction of the competency roles, and the understanding of building materials and the role they play within the structure.
Throughout this process, one of the things that has been commented on frequently is the golden thread. The one thing that we are seeing and hearing throughout these sessions is that the thread is more complex, and is potentially a network or a web. As such, the legislation that supports this—the secondary and the line part—needs to be clear that it does not end up conflicting, but rather carries the whole process through and leads us to safe buildings.
Q James, I want to tease out something that you just talked about now, which was the issue of sprinklers. We are talking about the Building Safety Bill, so would mandating the installation of sprinklers in all buildings make them more safe?
The answer to that is probably best delivered by technical experts. From an insurance industry perspective, there is no doubt in my mind that a building in which there is a fire and in which that fire is put out much more quickly than would otherwise be the case in the absence of sprinklers would probably, first, save lives, and secondly, result in significantly less damage to the building from fire. In that context, I suspect those buildings would be cheaper to insure.
As I said in an answer to a previous question, the insurance industry has long argued that it should be mandatory for new build buildings—in particular those that house vulnerable members of our community such as care homes and schools—to have sprinklers.
I support what James said. I think it should be more risk-based in terms of the approach and it should be part of the planning and sign-off on any new development. I do not think we should draw up arbitrary lines on sprinklers by height or floors. It should be risk-based.
As we made clear in our written submission to the Committee, the professional indemnity insurance market internationally and particularly in the UK—especially in construction and building—has very significantly hardened at the moment. That is due to a range of factors.
One of the things we want to understand in more detail from the secondary legislation in the Bill is the specific regulatory requirements on those professionals involved in managing a building because that has an impact on whether, the extent to which and the price for professional indemnity insurance that could be available.
As I said in answer to a question on this in the pre-legislative scrutiny of the Bill, now is not the best time, frankly, to be introducing new requirements on new professionals in building and construction from a professional indemnity insurance perspective. The industry wants the detail and I am committed to working with my insurance company members to understand what the availability and cost of professional indemnity insurance might be once we have the detail.
From BRE’s perspective as training providers in this field, we welcome the clear definition of roles within that, but the thing that goes hand in hand is to understand the scope and the levels that we are expecting within that competency to enable the insurers and end users to be able to benchmark the suitability of that training.
One of the things we look forward to in further legislation and also with the support of the regulator itself is looking at where each of those roles begins and ends. We heard it being said in the previous session how those sometimes do not necessarily join up and people make assumptions about where something begins and something ends. Also, within that, how are we going to take that training forward? How are we going to measure that training? Are we going to make them professional qualifications or managed qualifications? Is there an overarching syllabus that we would expect each of the roles to answer to or will it be left to training providers to interpret the guidance given in the legislation to deliver appropriate training around those points? That is an area that we would seek to build on.
Q Will the measures in the Building Safety Bill increase or decrease insurance premiums on at-risk buildings? I noted that in your evidence, James, you referred particularly to extending the scope of the Defective Premises Act 1972 from six to 15 years. Could you expand on that?
Sure. There are two different types of insurance in play in your question. On the cost of buildings insurance, it is important to note—I think I heard this in the previous sitting—that the Bill is prospective. It is not retrospective except for the provisions that I will come to in a second. Will safer buildings be built as a result of the Bill and all the accreditation and certification, in terms of the golden thread? Buildings should be safer as a result. As I said to your colleague, safer buildings should be cheaper to insure, and that insurance should be more available.
On your question about the Defective Premises Act 1972, that issue is about liability insurance, not buildings insurance. The challenge in that space is that, without there having been consultation, the Bill retrospectively extends the period of liability from six to 15 years; some insurance policies will have excluded liability over and above six years. I do not know who is going to pay for the period between six and 15 years, when there is found to have been negligence. There may not be an insurer that is on risk to cover that liability. That is the big concern from an insurance industry perspective. Other insurance policies potentially would come on risk. Then we have a question about whether it is fair and reasonable to amend the Act retrospectively without consultation.
My question is really aimed at Sarah, given her expertise. The Bill gives the Secretary of State the power to regulate construction products. Does it contain enough information about the new regime, and is there enough certainty about what products or type of products will be regulatedQ ?
An initial reading of the Bill in its current form suggests that the answer is no. Work will be required to ensure that we are clear on the standards being applied and how those are being used in the framework. We also need provision for going from testing to third-party certification, to ensure that we have the provenance following through on the products being used and the context in which they are being used.
The Bill lacks a little clarity. As mentioned earlier, the detail will probably have to sit in a secondary framework if we are to ensure that we get to the level of implementation that gives us a clear playing field.
Q To take you back to the previous question, James, you were asked whether building insurance would go up or down. In short, the answer was that it would likely go down for the new builds, but there is a question mark over historical buildings because of liability insurance. You said that you do not know how we resolve this problem between the six and the 15 years. From your experience in the industry, if there was to be litigation to try to determine an answer to that, how long would you expect that to take, and how expensive do you think it might be?
May I comment briefly on the buildings insurance point? I should have been clearer in my answer and said, “All other things being equal.” I do not know what the insurance premium tax will be on the commission of buildings insurance, or what the wider regulatory environment will be like, tomorrow, next year or in five years’ time. All other things being equal, the Bill should, overall, decrease the cost of buildings insurance. It is a very difficult question to answer.
As I said in my previous answer, some insurance policies will be clear. There will be some insurance policies where the businesses in question that were insured no longer exist, for whatever reason. The question then becomes how those affected leaseholders and/or building owners will exercise their rights under the extension. To answer your question, in my experience insurance litigation can be complex, expensive and lengthy.
On the question of the extension in the Bill, in some respects the answer is: “Let’s see what happens as a result of this process and the wider parliamentary process.” At the moment, we have significant concerns about the extension of the limitation period from six to 15 years. Once Parliament decides and legislates, and once the Act becomes operational, we will need to see what the ultimate regulatory framework looks like, and what the implications are from an insurance industry perspective. This is an issue that we are actively working on. It was, shall we say, a surprise for us to see this in the legislation. As I said in my previous answer, it had not been consulted on, so we are working through the potential implications, both from a regulatory and legal perspective, and that process is ongoing. I would like to answer your question, but I think it is too early to say.
One complication is that there is too much scope for different interpretations by professional people of the existing regulations. That is why there needs to be much greater clarity in the Bill—to remove or minimise that risk. For example, competent people looking at the same external wall system could draw different conclusions about compliance with the building regulations. We have to avoid that, because it creates uncertainty. It does not help confidence in the industry, and certainly not professional indemnity insurers, when you have that sort of situation, because you are not sure what risk you are exposed to as an insurance company. That is why we have to remove the ambiguity in the legislation and make it crystal clear. The challenge that the whole industry and everybody has—regulators as well—is dealing with this legacy issue while trying to build a better future.