The future of professional indemnity insurance: An overview of the latest market trends and predictions for the future
It’s no surprise to anyone that the professional indemnity (PI) market has been struggling significantly for some time. It’s been an extremely difficult three years for the traditional professions such as architects, engineers, design, and construction risks (D&C), accountants, and financial institutions.
Following a review in Lloyd’s of London, professional indemnity (PI) was noted as one of the worst- performing type of business, and insurers were instructed to take corrective action on their books due to the poor claims experience. Brexit then further compounded the difficulties in the market with some UK insurers unable to write Irish domiciled risks. And with certain events in the UK like the Grenfell Tower fire and claims starting to hit portfolios, drastic action was taken. We saw significant rate increases, restrictive endorsements, higher excesses, and limits reducing. With €6.5million not so easily available in the market, insurers reduced their individual capacity, which drove the increased demand for excess layers as clients still need to meet their contractual requirements.
Whilst many companies have struggled through this since 2019, there’s a definite sense that the tide is turning. There’s more competition in the market as new entrants and capacity has come in. For those insurers that have always been in the market, there’s a bigger appetite for new business. As corrective action has already been taken by insurers, this is a great time to offer both risks and genuine improvements for your clients.
It’s important as a broker that you approach your client’s renewals differently in this market.
Various elements need to be discussed and considered when managing a renewal. Failure to address these is likely to result in your client missing out on the opportunity to improve cover or potentially reduce costs.
Three important factors to consider are:
It’s vital that you start the renewal exercise earlier than normal as more businesses are seeking alternative quotations. From a logistical point of view, this requires more time from insurers. Therefore, insurers are declining to provide a quotation if they don’t have sufficient time. For medium to large businesses, we recommend starting your renewal exercise no later than 12 weeks prior to renewal.
- Addressing risk
The premium your client will pay is commensurate with the level of risk within their business. Premiums can be reduced based on how well that risk is managed.
If you have a client who operates in a trade where risk is high, it’s particularly important that you demonstrate how the client manages this risk and doing this should help drive premiums down. As brokers, our role is to present our client’s business to insurers in a way that may dispel some of this concern and make them provide you with a competitive quotation. So, understanding the risk is important.
Brokers need to highlight the qualifications and experience of the insured. Also, if the client employs sub-contractors, there are a number of critical questions that must be answered; do they check the competence of these and check their insurances and financial strength? Is there any oversight and audit of their work? And is there opportunity to expand on the process of selection of the designers used? It would also be prudent to ask questions and include details on the following; are standard contracts used? Is there a financial cap on the insured’s liability within the contract, overall contract sizes?
- Access and placement
To find an improvement for your clients, it’s important to access all parts of the market including traditional insurers, specialist schemes, Lloyd’s of London, and underwriting agencies. If you’re not doing so, you may not be receiving the best solutions for your clients.
You may also want to consider additional techniques such as expert broking. These are high-impact broking techniques which generate different results. Also consider leveraging scale when negotiating with insurers and using technology to assist with negotiations such as clients meeting insurers via zoom or Microsoft teams.
It’s imperative in this market that you utilise all options available to find the best terms for your clients.
Whilst we’re seeing improvements, especially within the SME sector, there are still some areas of concern.
Inflationary pressures will affect the cost of defense litigation, especially within the construction sector, as the cost of raw materials and labour is rising. This will make insurers increase their initial claim reserves and potentially slow the reduction in premiums.
Then with the increased interest rates (employed to dampen inflation), policyholders will see their margins being pinched and will expect their brokers to be providing fair value at renewal.
New entrants to the market won’t have the legacy tail that current insurers do, so they’ll drive towards undercutting existing market pricing to build their book. However, we should remain cognisant of the economic climate, and the link between recession and negligent litigation.
Overall, with three years of profitable underwriting years behind us, it’s expected for the PI market to soften. However, the effect that the current economic uncertainty will have remains to be seen.
Contact our highly experienced team in Robertson Low to provide solutions for your clients’ professional indemnity needs.
Call Associate Director Lesley Fitzpatrick on 086-8274956 or make an enquiry here: www.robertsonlow.com/products/professional-indemnity/
Howden Insurance (Ireland) Limited trading as Robertson Low is regulated by the Central Bank of Ireland. Howden Insurance (Ireland) Limited is authorised and regulated by the Financial Conduct Authority, No. 973308. Registered in Ireland under company registration number 338916. Registered Office: 10 The Courtyard, Kilcarbery Park, Nangor Road, Dublin 22, Ireland. Calls may be monitored and recorded for quality assurance purposes.