Updates to RICS Professional Indemnity Insurance Requirements and Minimum Policy Wording

The RICS has announced a series of changes to the RICS Professional Indemnity Insurance (‘PII’) Requirements and associated Minimum Policy Wording (‘Wording’), effective from 1 July 2025. The changes seek to provide clarity around the circumstances in which both surveyor firms and insurers may cancel policies (and the consequences of cancellation), and on the application of both consumer run-off and fire safety cover.

Whilst the RICS observed an improvement in market conditions, and noted the number of its Listed Insurers is back to pre-pandemic levels after increasing some 25% in recent years, not all of its proposed changes are to be implemented, with insurers still cautious about a return to pre-pandemic levels of cover, particularly concerning fire safety risks.

In this article, we summarise the key changes impacting surveyors and insurers.

1. Fire safety coverage

As we reported on last year (see our article here for more detail), in July 2024, the RICS revised its Wording to reflect a growing willingness amongst insurers to provide fire safety claim cover where its members had carried out professional services relating to buildings five storeys or above and with respect to EWS1s and Fire Risk Appraisals of External Walls (‘FRAEW’) on the following basis:

• negligent act, error, or omission (not full civil liability);
• applicable to professional services undertaken on or after 1 July 2024;
• cover can be in the aggregate, with defence costs included in the limit of indemnity;
• the uninsured excess may be applicable to defence costs.

Whilst the RICS has indicated its ultimate aim of returning to pre-April 2020 levels of cover (reinstating full civil liability fire safety coverage on an any one claim basis), it has not sought to alter the scope of fire safety cover this time around. Most insurers responding to the consultation voiced strong opposition to reverting to blanket civil liability coverage, with the RICS summarising those concerns:

“Key concerns included the evolving and unpredictable nature of fire safety risks, particularly for taller buildings. While the Building Safety Act and Grenfell Inquiry recommendations introduce changes, insurers noted unresolved issues such as internal fire safety risks, legacy liabilities, and unclear professional responsibility boundaries. Ongoing remediation efforts and emerging claims add to uncertainty.”

Many insurers were constrained by large, unresolved fire safety and cladding claims, and concerned about increased exposure due to the extension of the limitation period for claims made under the 1972 Defective Premises Act. A number expressed real concern that reverting to full civil liability basis cover could disrupt and potentially reverse the return to market stability by causing some insurers to withdraw and putting more firms at risk of being unable able to obtain cover.

Insurers raised further concerns that the definition of fire safety in the 2024 Wording was too narrow and that the Wording needed to be clearer to prevent unintended cover and to ensure that only those claims intended to fall within the full civil liability provisions in the Wording did so.

The RICS has therefore proceeded with some limited revisions to the Wording, aimed at providing clarity as to cover as follows:

1. Clarification of negligent act, error, or omission coverage – It having been suggested by some insurers that non-negligence-based fire safety claims might be inadvertently covered under the civil liability coverage, the Wording has therefore been revised to remove ambiguity.
2. Definition of fire safety – The RICS has now revised the definition of fire safety to explicitly include internal fire safety components of internal walls. This was due to industry concern that the previous definition of fire safety (‘external cladding systems, balconies or external wall system (including any insulation and/or fire breaks which form part of the wall system) of any building’) was too narrow and that a more comprehensive definition would serve to address coverage gaps and avoid disputes.

Of particular note is the new ‘catch-all’ provision in the Wording (‘ALL OTHER FIRE SAFETY CLAIMS’) which clarifies that any claim relating to fire safety, fire performance or combustibility of buildings five storeys and above (but which does not concern any cladding system, balcony, external or internal wall system) will be subject to full civil liability cover, but only from the retroactive date of 1 July 2024.

The widening of the fire safety definition reflects a greater market understanding of fire safety risks and is said to align with the Building Safety Act 2022, which takes a more holistic approach to fire safety, instead of focusing only on the potential combustibility of the external walls of a building. This can be seen by the fact the Wording does potentially restrict the scope of cover for claims concerning buildings five storeys and above which relate to internal wall systems. Moreover, the ‘catch-all’ provision means that all other fire safety claims concerning buildings five storeys and above will now only be subject to cover after the retroactive date of 1 July 2024. Insurers, brokers and RICS members should ensure that they are familiar with these amendments.

2. Consumer run-off coverage

Since 2019, the Wording has required insurers to provide a degree of automatic consumer run-off cover for errors and omissions in the event that a regulated firm ceases trading, thereby providing a level of consumer protection for a further period of six years. The insurer must provide cover for consumer claims up to £1 million (any one claim and in the aggregate) for the duration of that period.

Although the consultation indicated a lack of clarity on this point in the Wording (which the new changes have now addressed) run-of cover for claims by non-consumers, by contrast, is not provided for in the Wording. It is, nevertheless, an RICS requirement and must be arranged separately.

Whereas insurers were previously entitled to charge an additional premium for consumer run-off cover, that is no longer the case following the changes and the cost will have to be factored in to the original premium, enhancing protection for consumers by the removal of any requirement for further payment from the insured firm on cessation of practice. Furthermore, despite resistance from insurers, the revised Wording now provides that consumer run-off cover cannot be cancelled by insurers provided there has at least been a partial payment of the original policy premium (providing protection where, in cases of insolvency or financial distress, the firm has been unable to make payment of the premium in full).

However, the changes have not addressed frustration amongst insurers where run-off cover has been triggered by a firm ceasing trading but without notification being made to insurers, leading to uncertainty about ongoing exposures. The RICS has stopped short of introducing its proposed notification requirement which would have seen consumer run-off cover conditional upon firms giving prompt notice of cessation of trading (within 30 days of policy expiry), ultimately concluding that such a condition risked undermining the core objective of consumer protection, particularly in insolvency situations with a greater risk of oversight. Instead, the RICS will continue to  encourage firms to notify insurers promptly of cessation.

3. Policy Cancellation

The changes also provide clarity on the circumstances in which both firms and their insurers may cancel PII, and the consequences of cancellation.

Member firms may cancel their PII with 30 days’ notice, in one of these specific circumstances only (and provided compliant replacement cover has been secured):

1. there has been a material change in risk and the insurer does not offer ongoing coverage on commercially fair and reasonable terms;
2. the firm has been absorbed into another practice;
3. the insurer’s Standard & Poor’s rating is downgraded below BBB and/or its A.M. Best rating is downgraded below B+;
4. the cancellation is mutually agreed between the firm and insurer.

In the event of cancellation, insurers are to make a pro rata return of the premium relating to the unexpired period of the policy, unless by the cancellation date they have paid and/or reasonably reserved an amount in respect of claims made or circumstances already notified; in those instances insurers are to refund a “just and equitable” portion of the premium paid (notwithstanding insurer concerns about the vagueness of the term). Consumer run-off cover does not apply in the event of cancellation, unless agreed by insurers.

In the case of cancellation by insurers for non-payment of premium, the RICS noted that, whilst cancellations were rare, it was aware of instances where firms had declared that cover was in place despite non-payment of premium, giving rise to a risk of cancellation, potentially from inception. There was broad industry support for the clarity brought by the proposed changes, which provide for a more structured and transparent process whilst ensuring safeguards to maintain consumer protection. A new clause therefore sets out a clear procedure for policy cancellation:

1. firms will have 30 days from the policy inception date to pay the premium;
2. if the premium is unpaid after 30 days, insurers acquire the right to terminate by giving a minimum of a further 30 days’ notice of cancellation to the firm’s insurance broker (providing firms with a minimum period of 60 days from inception to make payment before an insurer may terminate);
3. in the event of cancellation, premium is due to insurers on a pro-rata basis for the period they were on risk;
4. in the event of a loss or occurrence prior to the termination date giving rise to a valid claim under the policy, insurers will be entitled to the full contract premium.

The payment and notice periods place the obligation on insurers to communicate cancellation procedures clearly and should limit instances of inadvertent lapses in cover by providing at least a 60-day period for payment of premium before cover can be cancelled. In addition, the Listed Insurer Agreement is being amended, requiring insurers to give the RICS 30 days’ notice (up for the previous 5 days) of a policy cancellation, providing more time for the RICS to intervene and offer potential support to a firm (or take regulatory action) to limit the exposure of the firm and its clients.

4. Any one claim coverage

Finally, the RICS sought to revisit cover reverting to being on an ‘any one claim’ basis, following its decision in 2020 to permit insurers to apply an agreed endorsement allowing coverage on an ‘aggregate unlimited round the clock reinstatements’ basis of coverage (part of a package of measures to stabilise the PII market at that time following the COVID-19 pandemic). It asked whether the time was right to simplify coverage arrangement for firms, observing that the increased cost of cover on an ‘any one claim’ model would likely be mitigated by firms not having to obtain the excess layer cover necessitated by cover being on an aggregate basis.

However, insurers cautioned against removing the flexibility and stability that those previous changes had brought, highlighting the risk that such a change may reduce underwriting appetite for the surveying profession or lead to insurers exiting the market.

Accordingly, the RICS is making no changes now but has signalled its intent to return to a simpler ‘any one claim’ model in the longer term.

Conclusion

Insurers, brokers and RICS members should ensure that they are familiar with the amendments to the RICS PII Requirements and Wording.

In particular of note, are the changes with respect to fire safety. It appears that the market has a greater understanding of potential fire safety risks and the extension of the definition of fire safety may lead to RICS members being exposed to uninsured claims relating to internal fire safety systems or other fire safety claims relating to buildings five storeys and above which may previously have been covered. We recommend that RICS members ensure that their terms of engagement are up to date and reflect these potential changes to their PII.

The remaining revisions to the Wording this time around are more about providing clarity around the scope of existing cover rather than making significant changes, albeit it is noteworthy that the revised Wording does enhance consumer protection around run-off cover and policy cancellation.