The Professional Indemnity Market
29 June 2020
The professional indemnity (PI) insurance market, particularly in relation to high risk trades such as construction and related sectors has constricted, with many businesses in the sector facing increased premiums and reduced cover for their forthcoming period of insurance. Some firms are even struggling to obtain insurance terms and in extreme cases, not being able to obtain cover at all.
The UK PI market has been in “soft” market conditions for over a decade, but it is currently the case that the cheaper rates have been withdrawn, and excess layer premiums have risen. Indeed, some insurers have withdrawn from the market altogether.
This hardening of the market has been fuelled by a number of factors, including claims as a result of the Grenfell tragedy, and poor underwriting results in 2017. Lloyds has instructed syndicates to limit the amount of new PI that they write, due to the poor performance of this class of insurance compared to other areas.
Nevertheless, it remains the case that there is room for manoeuvre, and our clients are not powerless to mitigate these wider insurance market conditions. We employ a coherent and prudent renewal strategy with our clients which greatly alleviates the effects of risk averse underwriting.
These are some of the key steps we undertake with our clients.
Approach the market early
We do not leave renewal until the last minute. If initial approaches to the market have produced no results or lacklustre results, together with our client we will not have any time for further steps.
Presenting the right information is key – differentiating our clients
The renewal presentation needs time and consideration in a hard market. It is also the case that many insurers are now asking for additional information which takes time to identify, and the markets will not quote best terms in its absence.
When there are acute claims concerns, an insurer does not want the whole sector. They want the firms in the upper quartiles, and those that offer fewer concerns.
Whilst proposal forms ask key underwriting questions, they do not capture the essential character of a firm. We therefore supplement the core form with information regarding the market strategy and operating philosophies of our client. This includes the key client base and key areas of work, how the firm reached their position within the marketplace and where they are heading to next. It is also imperative to share how they manage their risk in respect of capping liability and the strength of the T & Cs they have in place with their client base. We encourage our clients to meet with underwriters to help us to share their vision and journey.
Use the open market
As always, different insurers have different appetites, and are at different places in relation to their financial and performance milestones. Whilst some insurers have left the PI market, other insurers see this as an opportunity to increase their market share.
However, they will be underwriting judiciously, and are interested in the firms who can show that they are not operating within the key areas affected, or can demonstrate better risk management controls, such that they have better mitigated the risks concerned.
Approach the market, don’t over-saturate the market
We avoid a scattergun approach as this creates confusion and dilutes the message we are trying to convey. It is not just about approaching a particular insurer, but also about approaching the right underwriters within a particular insurer to obtain terms. Market knowledge and relationships are key in relation to specialist insurance such PI.
We are a specialist broker and we understand this market. However, a non-specialist broker may not be approaching the right markets and worse, they may be approaching the limited markets available in an unsophisticated way, with the result that these markets decline to quote. Closing key markets can be fatal in a limited market.
For most firms, PI insurance is the third largest cost, after wage roll and office costs. Expensive insurance, like any cost, reduces the capital available for reinvestment in the firm, whether that is additional staff, more up to date technology, or marketing.
Over time, firms with unnecessary expenses lose ground to their savvier competitors and lose market opportunities as a result.
We approach our client renewals in line with the above steps to give you a good opportunity to reduce the PI cost and pull ahead of your competition.
A little about us
The Wilson Organisation is a UK top 100 Insurance Broker and Financial Adviser. We are a long-established family owned and run business with a strong commitment to both our people and our clients. We work with business-owners, company directors and the management teams to provide financial, insurance and risk management advice that consistently adds value.
How we work with you
Whether you are a construction company concerned with protecting your people and plant or an architect or surveyor getting to grips with PI issues, Wilsons’ advisers will provide practical, commercial and independent advice to help you improve your systems and manage your costs through effective business insurance programme management.
Partnerships, relationships, however you describe them, are very important to us and we’re proud that we’ve worked with some of our clients since the early 1960s. Our business insurance clients tell us they stick with Wilsons because they are confident that we are on their side and will fight their corner. They also like the assurance they get from having one point of contact for all their business insurance and risk-related matters.
From our perspective, working with clients on a long-term basis means we can continually add that little bit of extra value as we get to know their businesses inside and out. Our approach is hands-on, supportive and practical. We combine detailed, desk-based research with site visits and surveys to provide a thorough and informative service.
Charlotte Perkins – Group Managing Director
[email protected] 0115 9420 111