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Insurance 'must be reformed'

Construction practice cannot be improved without a wholesale shake- up of the insurance system, say industry experts. Speakers at a multi- professional debate in London this week said the current system prevented those in the industry from learning from their experiences, and resulted in the bulk of insurance payouts going to lawyers.

Gillian Kirkby, partner with solicitor Rowe & Maw, said the way in which professional indemnity insurance operates dictated the way the construction industry organised itself and conducted its business. The crucial question was whether this would or should continue, or whether, as the Egan Report into construction proposes, the client and the client's needs should be predominant.

To create the client-centred industry required by Egan, the pi system should be more geared to project insurance, which is expensive, has a high excess and carries numerous restrictions. But, Kirkby argued, if constant feedback on problems, as allowed by this method of insurance, became the norm, 'the advantage to the insurer should be fewer and/or smaller claims'. The client would get a better and more appropriate job and the designers and contractor would probably gain some financial profit from their work.

Stephen Bamforth, of insurance broker Griffiths & Armour, also argued for a change. Clients rarely understood insurance costs as they were 'hidden away as part of a contractor or consultant's bid.' But research by his company found that 80 per cent of claims costs go to lawyers and experts, with only 20 per cent spent on putting buildings right.

By insuring the client, rather than the contractor and consultants, on a project-by-project basis, much of this cost could be saved. The policy would be triggered when damage occurred, with no need to establish liability. Resistance comes from clients, he said, because they traditionally seek to transfer risk to consultants and contractors and believe the cost of that transfer is low. 'However, the perception that the transfer of risk and liability in this way is free of cost is without basis,' Bamforth claims. 'In a dispute the client is likely to have to resort to litigation which is 'expensive, time-consuming and uncertain.' Bamforth quoted as typical a case where a claim cost insurers £7 million but the plaintiff ended up £500,000 worse off.

Kirkby said that although these ideas may sound idealistic, they are already being pursued by baa. Leon Winnert, an aircraft design surveyor with the Civil Aviation Authority, also explained how constructive feedback works effectively in his industry.

Bamforth concluded: 'If clients retain, manage and insure more of their own risks, that might be the best feedback that the insurance industry can provide to construction best practice.'

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