EFCA claims high insurance premiums suppress innovation

Ursula von der Leyen boldly proclaimed in In December 2019, “This is Europe’s ‘man on the Moon’ moment. The European Green Deal is on the one hand about cutting emissions, but on the other it is about creating jobs and boosting innovation.”

It was quite a statement. Just 18 months ago, the president of the European Commission laid out the scope and ambition of the European Green Deal. A €1 trillion ‘man on the Moon’ initiative as she called it, to launch the EU into a new era, to turn it into a climate-friendly, innovative powerhouse where all EU businesses, and nations and societies could benefit.

And what an appropriate parallel. The spin-offs from the Apollo 11 programme that took American astronaut Neil Armstrong to the Moon have helped define our lives on terra firma ever since – cordless drills and vacuum cleaners, solar panels, quartz clocks, wireless headsets and hearing aids, freeze-dried foods, space blankets, fly-by-wire technology. Not forgetting CAT scans, LED lights and water purifiers.

All that is without touching upon the exponential growth in satellite photography or computer power. The computer used to power the lunar lander that weighed in at 30 kilos, providing 64 kilobytes – about the same as a calculator from the 1980s.

So who can possibly doubt the power of innovation? Who could fail to embrace the opportunity to innovate at this critical moment in the greening of Europe, as it seeks alternatives to fossil fuels, to concrete, to any CO2 emissions, and looks to build a sustainable urban life for the next generation?

With deviations from agreed standard industry documents, the responsibility is on the consultants

EU plans post-pandemic greener future
Well how about the insurers? As the EU seeks a path to a greener future to coincide with the emergence from this painful pandemic, the risks associated with bold, innovative thinking have sprung into view – and the insurance business has been struck down by a virus of its own, namely risk aversion.

Ulla Sassarsson, deputy director at the Danish Association of Consulting Engineers, explained, “We are even seeing insurance companies leaving the market.

“We are experiencing a sharp rise in claims and, as a reaction, there’s a sharp rise in the premiums. That is worrying, as it amounts to a large percentage of the earnings for consulting engineers. This is not an industry which earns a lot of money in the first place.”

Helena Dahlberg, a lawyer with the Federation of Swedish Innovation Companies and vice-chair of the internal market committee at the European Federation of Engineering Consultancy Associations (EFCA) , she points to the escalation in the number of disputes hanging over construction projects.

Dahlberg said, “There are standard contracts in the industry with a financial cap for liability. But there are more and more deviations from the agreed documents, and that puts the responsibility on the consultants.”

Industry under pressure from policies and premiums
But why, in an environment where governments and the EU promote and sponsor innovation, are there more claims, more disputes?

Ulla Sassarsson points out that, “The claims environment has become much more aggressive”

Sassarsson stated, “The claims environment has become much more aggressive. We used to have technicians representing clients, and it used to be architects and engineers seeking a solution to a problem, but today it is almost always lawyers. They have a different view as to how things are going to be resolved.

“Officials are risk-averse anyway and in a municipality, for example, they find it very difficult to go against advice from an external lawyer.”

Both professionals agree that it is also about time and money. Why hold up a project while you negotiate a way out of any problems, when you can simply start a formal dispute and put the problem to one side for two to three years?

Sassarsson added, “And once you start down that track the genie is out of the bottle. Everything is getting worse, and suddenly you have 200 issues or complaints hanging over the one project.”

It is not an affliction that is confined only to Denmark or Sweden. A recent survey of EFCA members revealed concerns growing in numerous countries, from France to Norway. In Ireland it has reached epidemic proportions, with insurance premiums up (anecdotally at least) by as much as 75 per cent – a situation worsened by the fallout of Brexit as UK insurance companies raise their fees, or simply opt out of the market.

Finland has seen premiums rise some 50% in the past five years, with insurance costs eating up to 20% of the earnings from a project for many engineers.

Insurance company’s innovative initiatives
So while EU funding might be conditional on innovative initiatives, insurance companies are making that very difficult – and it is not that hard to see why.

Sassarsson, who quotes asbestos, carbon fibre facades and flat roofs as examples of great ideas that proved inadequate, said, “Innovative ideas and materials do not always work.”

Helena Dahlberg explains, “You are obliged to tell clients if you are using any materials or methods which are not in common usage”

Dahlberg pointed out, “So you do have to balance benefits and risks. And the risks are seen to be rising, because the lawyers are much quicker to act.

“You are also obliged to tell clients if you are using any materials or methods which are not in common usage, and that discourages them from giving the go ahead.”

All of which affects the smaller consultancy firms disproportionately.

Sassarsson added, “Bigger firms can arrange better premiums. If you have a lot of cars and buildings, with thousands working for you, that is very different to a staff of 10 and a rented building.”

Dahlberg concluded, “It is the whole culture that needs to change. We need to develop the mindset to innovate, to work together. There is too much of everyone just working in their own silos and not seeking solutions.

“If politicians want to change, then they have to create the opportunities to carry out procurements IF they really want this.”