The Royal Institution of Chartered Surveyors (RICS) is recommending changes to Professional Indemnity Insurance (PII) arrangements for surveyors who carry out property valuations.
The move is in response to a deluge of claims against surveyors for making allegedly negligent valuations following the property downturn. RICS is concerned that the volume of claims is making the cost of PII too high for valuation surveyors.
“The economic downturn has led to a large number of borrowers defaulting on their loans. As a result some lenders have tried to recover their losses from valuation surveyors, alleging that the original property valuations were negligent,” says James Burgoyne, Director, Brunel Professional Risks. “Whatever the rights and wrongs of these allegations, it’s had the effect of pushing up the number claims against valuation surveyors, which in turn has driven up PII premiums.”
“RICS’ ideas to make PII more affordable are welcome, but the bottom line for valuation surveyors is to make sure they have effective risk management procedures in place to protect themselves against claims in the first instance – particularly in relation to their contracts and terms of engagement – and then to vigorously defend themselves against any unjustified claims. At Brunel we take these matters very seriously and work hard to make sure that our valuation surveyor clients receive quality insurance at competitive market tested premiums, top quality risk management advice and robust claims handling services.”
RICS has made six key recommendations to reduce the cost of PII cover. These include creating more balanced standard terms and conditions of engagement for valuation surveyors and increasing the use of alternative dispute resolution to resolve claims, while continuing to drive up valuation standards. The full recommendations are available here.
International law firm DAC Beachcroft points to the increased use of After the Event (ATE) insurance by solicitors as one reason for the increase in the number of claims. “Due to the effect of success fees and ATE insurance, legal costs often exceeded the value of claims. As a result, professional indemnity insurance premiums soared and many surveyors found it impossible to continue to provide secured lending valuation services, especially where the risks (of potential future liabilities) frequently far-outweighed the rewards (of modest fees),” said Duncan Greenwood, professional risks partner at DAC Beachcroft. The firm’s press release on the RICS recommendations is available here.
A news report on the new recommendations appeared in Insurance Times magazine, here.
