Much is being made in the insurance and financial press at present around the availability and cost of Professional Indemnity insurance (PI). For many industries and professions the cost of Professional Indemnity is spiralling and there are many examples of firms struggling to obtain cover at all.
Since 2018, Professional Indemnity rates have been steadily increasing to the extent that it is not unusual for firms to struggle to secure quotes, for premiums to increase dramatically, or for the basis of cover to be altered and indemnity for certain activities removed (both going forward and retroactively).
What has caused this dramatic shift?
Lloyd’s of London, one of the global centres for Professional Indemnity, was forced to undertake a profitability review after underwriting results highlighted that PI was the poorest performing area of underwriting.
Large claims associated with energy from waste projects, renewables installations and the potential exposure to cladding following the tragic 2017 Grenfell Tower fire have caused significant concern amongst underwriters.
In addition, many insurers are no longer writing Professional Indemnity risks for certain industries, whilst others are exiting the PI market altogether. As a result, there is a surplus of demand and scarcity of a supply, so it is proving extremely challenging for some firms to agree indemnity at all, which results in rates increasing substantially.
This challenging market has been compounded by the Coronavirus crisis which will inevitably result in an increase in insolvencies and a challenging economy for a sustained period. These economic challenges often result in an increased propensity for actions, again this is likely to increase claims frequency and premiums will also increase as a result. Therefore, the challenges in this market are expected to continue for the foreseeable future.
What can businesses do?
While UK PI market conditions are extremely challenging, it is possible for businesses to take steps to help manage insurance costs and cover. It is important to engage a broker who has specialist capabilities in PI, and it is also advantageous to work with a broker who can access the Lloyd’s and London Markets in addition to the UK and Global composite insurers.
We strongly recommend starting the renewal process early as insurers are adopting a robust approach to assessing risks and they are being selective. This is compounded by the challenges of negotiating remotely during periods of lockdown and accessing Lloyd’s underwriters, which means that the renewal process is taking more time. We would encourage firms to leave plenty of time to put together the extra information that insurers may require and answer any additional questions that underwriters may pose. Providing your insurance broker with as much information as possible will ensure they have sufficient time and opportunity to negotiate the best terms possible on your behalf.
It is essential that firms carefully consider the status of any on-going claims, ensuring that all outstanding matters are dealt with and verified claims experiences obtained from the existing and previous insurers in good time. Underwriters will also look to understand what lessons have been learned as a consequence of any losses that have led to claims and how improvements are being made.
Underwriters will be placing more focus on your business’s internal procedures and risk management controls when considering a risk. Therefore it is often necessary to be able to demonstrate the levels of risk management and control by providing documentation and supplementary information highlighting the extent of risk management and procedures; robust cashflow management measures; client and supplier contracts and supply chain management methods. This shows that your business is well managed, making it more appealing to underwriters which can help to secure robust cover on competitive terms.
Get in touch
Specialist Risk Group have specialist capabilities in Professional Indemnity. Within the Group, we have Lloyd’s brokers that can access a number of exclusive facilities and we can exert our leverage as a major UK broker to negotiate comprehensive cover on competitive terms.
Get in touch with our experts today:
020 7977 4800