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Before I start, I would like to provide you with the following simple definition of Professional Indemnity Insurance (PI) cover so you understand what I am referring to in this blog.
“Professional Indemnity insurance is there to protect against claims made from your clients for wrongful advice, errors or omissions. Professional Indemnity insurance is a necessary protection for any business that provides any advice, designs or any other professional service to clients.”
Specifically in recent months there has been a significant hardening in the PI market for Design and Construction, Architects, Engineers and Surveyors resulting in some eye-watering increases in premiums on renewal. It’s best to start with an overview of the current market to put these increases in context:
Professional Indemnity Insurance (PII) Market
A couple of years ago, post the Grenfell tragedy, the PII Market took a downturn with insurers starting to be a lot more strict on the Design and Construction risks they would take on and the cover they would grant. To give you an example, I had a client who was a Window Glazing Designer, Manufacturer and Installer who also worked on curtain wall projects (not full on cladding). My clients renewal went from circa £3K to circa £16K with just a slight increase on his turnover. This was my first taste on a market ‘hardening’.
Furthermore, the market was further pressured by a thematic review initiated by Lloyd’s of London, from where a lot of the capacity for this market comes from. Lloyd’s has implemented a clear process to respond to the losses in the market by demanding that its syndicate’s business plans do not include unprofitable areas of exposure. Lloyds’ review identified that two-thirds of its syndicates were loss making and PI was highlighted as one of the worst performers, which resulted in a significant reduction in capacity for 2019.
We believe clients need to know what they will be facing as they seek to renew their PI cover so that they can start working with their broker to get the best deal and manage their budgetary requirements. Many brokers of the younger generation (myself included as a 33 year old!) have not really experienced a hard market. I have 11 years industry experience, but the PII market has been softening since 2000. As a lot of brokers wouldn’t have experienced such difficult circumstances, their reaction may be to keep quiet and cross fingers (and legs!) at renewal time.
It does not help clients if brokers hide the grim reality of the changing market conditions. We believe the best way to help clients is to be honest about the market and to start the conversations about what to expect as far in advance of renewals as possible. With the market hardening at a rate not seen for over a decade that philosophy applies more than ever.
It gets worse (Supply < Demand)…
The PI market has taken another downturn in the past few months and capacity and pricing with further reductions in cover and sharp increases in premiums. Whereas originally starting in the design and construct space this is now within Architects and Engineers and will soon widen into the Surveyors area. As mentioned, since the year 2000 the market has been softening, but In the past few years the PI market has been so under-priced it did not make financial sense for insurers to continue to trade in this area with all insurers taking corrective action.
The corrective action was originally seen as stepping stones to a premium/cover place that insurers were comfortable with, but in recent months we have seen steep increases across the marketplace as the supply has diminished and the demand has increased thus intensifying the market and the premiums charged. Many MGA markets whose financial years’ run from Jan to December closed for business in October, with some insurers filling entire capacity as early as July.
Insurers are now so inundated with new business and renewal enquiries that they will decline any risks that are poorly completed or lack full information. Because of the influx of risks this means insurers can be very selective, change and restrict coverages and increase premiums by significant amounts all safe in the knowledge that there will be no competition as the whole PI space has moved in the same way. Insurers certainly have the power at present and it is our job to navigate around this and the best way to do this is with precise and eloquent submissions so that we can broke this efficiently.
In the past few weeks we have seen risks with premium increases of circa £5k to £67k, £19k to £87k, £35k to £95k and £130k to £300k, all of which the makeup of these risks have stayed very similar to the previous year!
What can you do?
If you are unfortunate enough to be caught in one of the higher risk sectors they keys are to engage in the conversation with your insurers as early as possible, ideally 90 days or more in advance of renewals, and to engage the services of a broker who is an expert in the PI market and really understands the market forces in play at this difficult time.
At Burgis & Bullock we have been working alongside a specialist broker for a number of years and if you would like us to make an introduction on a no-obligation basis please get in touch with your usual contact, or call us on 0345 177 5500.