Many professionals, who have been in business for 20 years or more, may remember that the professional indemnity insurance market used to follow regular cycles of premiums falling and then rising, largely in conjunction with the macro economic cycle of boom and recession.
Those who have traded only in more recent times will likely have enjoyed many years of annually reducing premiums for their PII. This has largely been due to the over-abundance of insurer capacity in the UK SME PI market, which inevitably leads to prices being squeezed year on year.
The Hard Market
Unfortunately that all seems to have taken an abrupt about-turn at the end of 2018 with a hard market now firmly in place across the majority of the UK PI market.
Just a year ago it was estimated that there were over 100 Company market insurers, Lloyd’s syndicates, MGAs or Brokers with Binding Authority agreements who were writing UK SME PI insurance.
However, in the last quarter of 2018 Lloyds’ of London conducted a review of its worst performing lines of business, non-US professional indemnity insurance being the second worst. For example in 2017 Lloyd’s syndicates incurred £272m in claims but collected only £170m in premium for non-US architects, engineers & construction risks, clearly an unsustainable equation. Lloyds’ has required each syndicate to either cease writing non-US PI as a class of insurance, or submit a viable business plan which will ensure profitability is returned in the short term. For some syndicates this review meant the end of their ability to write non-US PI: Aspen 4711, Barbican 1955, Brit 2987, Channel 2015 & Hamilton 3334 have all ceased writing non-US PI within Lloyds’ for the 2019 year of account.
The problem hasn’t just been confined to Lloyd’s, in recent years Aviva exited the UK SME PI market and many other company insurance markets have curtailed their appetites. Moreover recent months have seen the demise of a number of MGAs as their capacity has become due for renewal and have withdrawn from the market.
Consequently as available markets retract, premiums and excess levels are being increased and policy terms & conditions restricted, for example aggregate limits being imposed where any one claim limits were previously available.
How to navigate your clients through the Hard Market
Firstly you need to partner with an independent specialist PI broker who has both the expertise and clout in the market, with access to a wide range of insurers and markets. At Brunel Wholesale we have access to over 40 PI markets and have the commercial strength of the entire Brunel Group behind us.
Don’t flood the market with your client’s submission, a scatter gun approach is often counter-productive, some brokers have better relationships with certain markets than others, it’s key to marry up the right broker and the right insurer.
This year more than any other year it is important that you start the renewal process with your client early, at least three months prior to the renewal date. An extension of cover beyond renewal date may not be available from the previous year’s insurer.
As a specialist PI broker, Brunel has noticed the impact of the hard market on professional services and is actively encouraging clients to review their PI 3-6 months prior to renewal, dependent on the size of the risk.
It’s a bit like speed dating
Obtaining a quote in this type of market is a rather like attending a speed dating event. Your clients need to present themselves well: they should get a haircut, polish their shoes and smell nice! By which we mean their proposal form and any additional questionnaires insurers may want should be fully completed, any claims information is complete and up to date, finally highlight anything that makes your client stand out from the crowd. For example, does your client have industry or governmental quality assurance marks such as ISO awards or other certifications; has your client recently won any industry/professional awards; or does their employee training regime mean that they have a high proportion of qualified staff?
If there have been any significantly costly claims, or a run of similar claims, ensure your client provides a comprehensive explanation of what happened, what went wrong and more importantly what lessons have been learned and changes made to their procedures or processes to reduce the risk of a reoccurrence.
If you would like to find out more on how we can help or would like to work with us as an extension of your business, then please do not hesitate to contact one of our team to discuss your requirements or arrange a meeting.