The Building Safety Bill and Fire Safety Act 2021: Implications for insurers

It has been 4 years since the devastating fire at Grenfell Tower which not only claimed 72 lives but also exposed serious failings in the construction of, and fire safety in, high rise residential buildings.

The Building Safety Bill and the Fire Safety Act 2021 are key to improving safety standards in buildings and ensuring there is adequate protection of lives and property.

We discuss below the changes which are being brought about by these new pieces of legislation and how these will impact insurers.

What's new?

Fire Safety Act 2021 ('The Act')

The Act received Royal Assent on 29 April 2021 and amends the Regulatory Reform (Fire Safety) Order 2005, which deals with fire safety in buildings. It has been designed to ensure people can feel safe in their homes, and that a tragedy like the Grenfell Tower fire never happens again. The key changes are as follows:

The Act provides clarification as to who is accountable for reducing the risk of fires.

It provides that a 'Responsible Person' who could be, for example, the owner or manager of a multi occupied residential buildings, must assess and mitigate the fire safety risk associated with both (1) the structure and external walls of a building and (2) entrance doors to individual flats and communal parts of the building.

The fire risk assessment for the building must be updated to cover both of the areas referred to above. The Responsible Person can appoint a fire risk assessor to assist with compliance.

Failure to comply with obligations contained within the Act could result in enforcement action being taken against the Responsible Person.

The Act is designed to provide a foundation for secondary legislation which will not require a further Act of Parliament, but will incorporate the recommendations from the Grenfell Inquiry. This may include matters such as regular lift inspections, review of evacuation plans and clear fire safety instructions to residents.

The Act is complemented by the Building Safety Bill.

Building Safety Bill ('The Bill')

The Bill is currently making its way through Parliament and in the Queen’s speech on 11 May 2021 the Queen confirmed that the Bill will be brought forward in this term of Parliament. It is therefore expected to come into force later this year.

The aim of the Bill is to address the concerns raised around fire safety, the existing building safety regime and any confusion around the roles and responsibilities of those involved in the construction process. This will be achieved by ensuring there is greater accountability and responsibility for fire and structural safety issues throughout the lifetime of buildings. This includes a new and stricter regulatory regime specifically for ‘high risk buildings’; a high risk building is one which is 18 metres or more above ground level or contains more than 6 storeys (ignoring any storey below ground level). 

However, there has been a call for this minimum height requirement to be extended to include all construction in the UK. We may therefore see further change in the future.

The Bill is an overarching framework, and provides that much of its detail will ultimately be set out in separate secondary legislation. However, some of the key changes are as follows:

• The introduction of a new Building Safety Regulator ('BSR') who will be tasked with overseeing the new, more stringent, regime for high risk buildings as well as ensuring that all residential buildings meet regulatory requirements during the planning, design, construction and occupancy phases of a building’s life.
• The creation and expansion of the roles of various dutyholders to ensure accountability and statutory responsibility across the design and construction of high risk buildings. The most notable being the creation of the 'Accountable Person' who will be legally responsible for building safety on occupation. The Accountable Person can be an individual, a partnership or corporate body and can be a management company. They will have to:
  • Assess the building safety risks and prepare a Safety Case Report to be submitted to the BSR;
  • Appoint a Building Safety Manager who is responsible for managing building safety risks on a day to day basis; and
  • Apply to register the building as a high risk building.
• The introduction of a new system of three 'gateways' or 'check points' for high risk buildings at planning, design and construction stages to ensure that regulatory requirements are checked in detail at each point. The BSR will require evidence that the relevant standards have been satisfied before one can pass through one gateway to the next.
• The Bill proposes a ‘golden thread of information’ which is a live digital document with accurate and up-to-date information of the building data around fire safety matters.
• New or increased powers are to be granted to the Architects’ Registration Board to assess the competence of architects against agreed criteria and to require and monitor continuing professional development.
• Personal liability of directors and officers for breach of the various duties and obligations introduced by the Bill.
• A Building Assurance Certificate will need to be obtained from the BSR in respect of all high risk buildings in occupation, whether existing or new, and the building will need to be registered. The BSR will only issue a Certificate if they are satisfied that the Accountable Person is complying with the statutory obligations placed on them.
• Enforcement powers are to be expanded, including extending time limits for prosecution for non compliance to 10 years, together with the BSR having power to prosecute all offences and to issue compliance and stop notices.

Implications for insurers

The new legislation is, without a doubt, a positive and long awaited step in the right direction to improving building safety and fire safety risks. Insurers have long called for fundamental reform of the building regulatory and safety system due to the number of buildings which have been left with poor levels of fire protection.

The important point to consider, however, is how will these changes impact the insurance market and what do insurers need to be thinking about ahead of the Bill coming into force?

The changes brought about by the new legislation should mean fewer insurance claims under Buildings policies or construction related policies due to improved building safety and reduced fire risks. Further, the preservation of the golden thread of information together with the mandatory reporting requirements, combined with the increased sharing of information introduced by the Bill, should assist insurers and risk surveyors in better understanding the risk they are being asked to underwrite and survey.

However, it is the creation of new professional duty-holders and the increased levels of responsibility that will now sit clearly with building owners, managers, developers, contractors and other construction professionals, together with the power of enforcement, which is likely to have the most impact for the insurance sector.

For example, it is clear that insurance needs to be available for duty-holders to ensure the success of the Bill, but at the same time, we do not know what underwriters’ appetite will be for the risks associated with the various new duties and obligations introduced by the Bill: Will there be a need for bespoke exclusions to reflect that appetite for risk? What questions will need to be asked at inception or renewal in respect of the skills and qualifications of insureds to mitigate the risk? And consideration needs to be given to the availability of insurance cover for civil fines imposed by the BSR.

The Government are likely to be watching the insurance sector’s response closely. Particularly the extent to which professional indemnity cover is offered in respect of the new roles identified and whether any public policy decisions are required, such as a Government backed insurance scheme, if the market cannot respond to the demands placed upon it by the new regime.

Therefore, whilst the measures to improve building safety and create a more sustainable construction industry are undoubtedly important and should reduce the risk of loss and damage caused by fire, consideration will need to be given to the insurance market’s ability to provide adequate cover to duty-holders and construction professionals. Insurers may want to consider what changes are required in order to mitigate the added risk introduced by the Bill such as bespoke exclusions, additional questions at inception or training for risk surveyors.

Hanna and Alexander Clare provide further thoughts in an article published in Insurance Day here.

This content was written by BLM prior to its merger with Clyde & Co.