12 October 2021
Good afternoon. Thank you to Jennifer for that introduction and to Dods for the opportunity to be with you today.
As an industry responsible for protecting people’s homes and livelihoods, insurers have a strong interest in working with Government to improve the built environment for our communities and wider society. The Building Safety Bill represents a once-in-a-generation opportunity to fundamentally reform the future building regulatory system in England. In my remarks this afternoon I wanted to cover the context of why we are where we are today; insurers views on the new regulatory framework currently being considered; and finally to address some of the criticisms directed at the insurance industry.
The ABI and our interest in the legislation
So, what is the ABI and what is our interest in the Building Safety Bill? The ABI is the leading insurance trade association in the UK representing the views of many of the largest commercial property insurers.
Our Property team has been fully engaged with Parliamentarians throughout the progress of the draft Building Safety Bill, working closely with officials at the (now) Department for Levelling Up, Housing and Communities (DLUHC). As the ABI’s Director of General Insurance Policy, I’ve given evidence to the Housing, Communities and Local Government Select Committee’s pre-legislative scrutiny of the Bill in Autumn last year; more recently gave evidence to the Public Bill Committee of the legislation; in addition to spending time with affected leaseholders to listen to their concerns.
But there is a longer history to our work on this important public policy issue. For many years – and importantly well before the tragedy at Grenfell – insurers have been concerned at the hollowing out of building safety regulation under the guise of stripping out “red tape” or agendas focussed on “de-regulation”. In 2009, we published a report entitled “Tackling Fire: A Call for Action” which set out our concerns that the stripped out regulatory framework posed serious risks to peoples’ lives and to the safety of the buildings that they live and work in. And in 2016, on the 350th anniversary of the Great Fire of London, it was a great honour for me to be invited to the Worshipful Company of Firefighters to deliver the Annual Fire Lecture. In that speech, I questioned whether, in the 21st Century, we still had lessons to learn from a major fire that took place in the 1600s, especially in terms of the use of sprinkler systems.
It took the deaths of 72 people in a high-rise tower in West London for policymakers to actually start to listen. But the tragedy at Grenfell was, to a certain extent, both predictable and preventable, especially when viewed in the context of other tragic losses of life from fire, notably the Lakanal House fire in 2009.
In the post-Grenfell world, policymakers started looking at the building regulatory framework, but it was not really a surprise to us as an industry that this was found to be wanting. What was surprising was just how bad the regulatory framework had become. This was confirmed by the Government-commissioned, independent and wide-ranging review led by Dame Judith Hackitt which found the system was “not fit for purpose”. That is important from an insurance perspective. Insurers are not regulators. They rely on an effective regulatory framework for building design, construction and approval to accurately price the policies that they provide to their customers.
Sadly, we now know all too well that for years buildings have been designed poorly, constructed with products that are not just unsuitable but that are dangerous and signed-off people who don’t understand the products or building methods that have been used. These buildings were bought by consumers who relied on the regulatory framework to provide them a safe place to live, but instead provided them with homes riddled with fire safety defects and covered in combustible cladding.
The fact of the matter is that too many people continue to live in buildings that are dangerous. From an insurance perspective, dangerous buildings are riskier buildings and that is reflected in the premiums insurers charge. Insuring a high-rise building of, for example, 60 flats is a very different proposition when the maximum property loss could well be the whole building rather than one or two flats.
And these higher risks have been reflected in insurance claims. The Government often points out that the overall number of building fires and the number of people killed in fires has reduced over recent years. Both are true and are positive developments. But what insurers have seen is a significant increase in the damage and cost resulting from the spread of fire. There has been a threefold increase in the cost of the average fire claim over the last decade with total fire losses costing hundreds of millions of pounds each year. In addition, we have seen an increasing severity of fires, even since Grenfell, where fires in Barking, Manchester and, most recently, a residential block in East London, have spread faster than expected and major loss of life has been narrowly averted.
The Building Safety Bill
It is against this background that the insurance industry has taken such an interest in the Building Safety Bill. We welcomed the publication of the Bill as a once-in-a-generation opportunity to fundamentally reform the future building regulatory system in England. It is essential that industry, Parliament and the Government work together to ensure the Bill delivers on its aims to establish a framework that will create high quality, resilient buildings where people feel safe to live and, in doing so, gives the insurance industry confidence that the system works as it should.
The Bill presented to Parliament in July has not substantially changed from the draft Bill published for pre-legislative scrutiny in Summer 2020, other than the newly introduced proposals for retrospective changes to the Defective Premises Act and Buildings Act.
Our view remains that the scope of the Bill remains too narrow. We would like to see the Bill’s scope extended to cover all buildings at high fire risk, not solely multi-occupied residential buildings, care homes and hospitals over 18 metres. While we understand that reform needs to start somewhere, consideration of fire risk should not be constrained to arbitrary height limits but should consider the vulnerability of the people using the building at any given time. Care homes, hospitals and schools, as well as many residential buildings, are sub-18 metres and the new regulatory framework should, in our view, apply equally to these structures.
By way of an example, The Cube student accommodation building in Bolton housed 217 residents. It suffered a massive fire on 15 November 2019, posing a serious risk to life safety. Leaving aside the absurdity of a regulatory system that did not require it to have a fire sprinkler system, the building was 17.84m in height and so would not be covered by any of the new rules proposed in the Building Safety Bill.
The issue of a building’s height is also a concern when it comes to considering the Bill’s ambition to deliver on the Hackitt review’s aim to collate a ‘Golden Thread’ of information throughout a building’s life. Although we support the Government’s aims in this regard, the Bill does not provide any detail on how this information will be recorded, stored or shared. Insurers need access to this information, especially in the context of Modern Methods of Construction, to enable the industry to more accurately price the risk presented by a particular building. So, if meaningful change is to be achieved, the ‘Golden Thread’ is key to enhancing fire safety for all, not just for those buildings over 18 metres in height.
As with many things in life, the devil is in the detail and so we are concerned at the significant amount of detail that is being left to secondary legislation. In some respects that is inevitable and desirable. Secondary legislation is a useful way in which regulation can be kept updated without needing to pass another Act of Parliament. But at a time of such fundamental change in the overarching building regulatory framework and, given that we are now over four years on from the tragedy at Grenfell, the success of the new regime is fundamentally dependent on the secondary regulations working. We welcome the commitment from Government that they plan to publish further information on the secondary legislation, but it would be useful to see that sooner rather than later so that all stakeholders can offer their expertise and comment to ensure that the new regime is fit for purpose from Day One.
Impacts on Professional Indemnity Insurance
For the insurance industry, this is particularly important in the context of professional indemnity insurance (PII) where the Bill places responsibilities on the Accountable Person and the Building Safety Manager roles. Many professional indemnity insurers in the construction sector are asking a greater number of questions of prospective and current clients in terms of potential exposures. Insurers continue to be cautious about writing PII in the construction sector which has a long history of major insurance claims, where long and varied supply chains make establishing negligence and liability more complicated and where the supply of reinsurance is more limited. This is not an issue that is unique to the UK - liability markets around the world have hardened significantly over recent years, with construction being the most affected industry.
In giving evidence to Select Committees both last year and last month, I was asked whether PII will be available for the new Approved Person and Building Safety Manger roles. The answer is that it is too early to say. We urgently need to understand the detail of the secondary legislation to be able to give an indication as to whether we think PII would be available and, for the reasons I gave earlier, now is not an optimal time to implement a new regulatory framework requiring professional indemnity cover. But insurers have worked with the Government to develop the State-backed scheme for those unable to obtain PII for the completion of EWS1 forms and we stand ready to continue to offer advice and support to officials and Ministers considering PII in the context of the Building Safety Bill.
It has to be said, however, that confidence in the insurance market has not been enhanced by the revised version of the Bill retrospectively amending the Defective Premises Act to extend the period within which legal action can be brought from six to 15 years. This was introduced into the Bill without consultation and with no impact assessment having been undertaken. Insurers have significant concerns that this could lead to an increase in claims, precisely at a time when the Bill anticipates insurers increasing their risk appetite.
Impact on Current Leaseholders
The final point I wanted to make in my remarks this afternoon, it that it is worth remembering that the Building Safety Bill is progressing through Parliament at a time of ongoing stress and anxiety for hundreds of thousands of leaseholders who continue to live in buildings with highly dangerous, flammable cladding and other fire safety defects. The Bill will do very little for them given its focus is on buildings built following the implementation of the legislation.
One of the effects of the failed regulatory regime for those in affected buildings has been significant increases in the cost of insurance. Insurance is a business based on pricing risk and the sad reality is that we continue to have too many buildings at risk of fire. Ultimately, the solution to the problem of the rising cost of insurance is to fix the buildings. The Government has allocated £5 billion to do so with a stated aim of recouping some of those costs from the private sector. Insurers are clear that, given it was the construction sector that was responsible for producing these buildings - and banked the profits accordingly – it is the construction sector to whom the Government should turn for funding.
Pending remediation, the insurance market continues to develop new and innovative commercial products as part of a wider ecosystem of market interventions to help address the problem. But there is no silver bullet and market-led initiatives, by themselves, will not be the panacea that many seem to hope for. We have said that there is some merit in the considering a Government-backed scheme to provide support to the small number of buildings that are simply too risky for the market to insure at prices that are affordable to the majority of leaseholders. Again, we continue to stand by, ready to assist Ministers and officials in the design and implementation of such a scheme if that is the path the Government chooses to go down.
Conclusion
In conclusion, there is much to welcome in the Building Safety Bill and the insurance industry has been pleased to support the direction of travel that the Bill provides, given our long-standing concerns with the state of the building regulatory framework. Our fundamental concern remains the Bill’s focus on buildings over 18 metres as we want to see a regime that seeks to make all buildings, regardless of height, as safe as they can be for those who live and work in them. There remains significant work for officials and Ministers to do as the new regime takes effect, not least the publication of reams of implementing secondary legislation. So, like many of you, we will be continuing to watch developments with interest.
Thank you.