Divisional Director Sean Trent provides advice on how to achieve the best results for your clients in the current difficult PI and Professional Risks market
Is the current Professional Indemnity market harder than the fiendishly difficult BBC quiz Only Connect? Yes, it really might be even harder than the fiendishly difficult BBC quiz show. It is certainly the most difficult and challenging insurance market I’ve experienced in over 30 years in the industry, and the underlying problems were all solidly in place and building long before we could all spell coronavirus.
A perfect storm was brewing. Historically low premiums due to overcapacity, increasing claims, poor investment returns for insurers, increased capital adequacy requirements due to Solvency II, increased claims reserving due to the Ogden Report, increased reinsurance rates - these all meant market capacity was reducing and premiums increasing, well before Covid-19. Professional Indemnity was one of the worst performing classes, as identified in the 2018 Lloyd’s thematic review, which was swiftly followed by several insurers withdrawing from the space altogether. Meanwhile, the shockwaves of the 2017 Grenfell fire were rippling through the construction and property insurance markets.
How has this affected clients?
- The lack of RICS compliant cover for surveyors became such an issue that RICS had to amend their wording to more realistically reflect the market conditions.
- Many architects are now facing potential personal exposure to Collateral Warranties they may have signed in good faith in the preceding 12 years, as cladding and fire safety cover has been retrospectively removed from their claims made
- Significant rate increases are having to be met even whilst facing reductions in cover. Where cover was Any One Claim with Defence Costs in Addition, it may now be quoted Aggregate inclusive of Defence Costs, for example.
Then the small matter of Covid-19 arrived. It is still far too early to accurately understand the potential for worldwide losses, but the level of uncertainty generated has been massive. Even where a loss may not be indemnified, the potential for huge legal costs being incurred to determine this is very real. Insurers are duly concerned as to the general economic outlook, which has a proven link to claims activity engendering a cautious approach where new business is concerned. Any risk directly or indirectly involved in property (RICS, Architects, Design & Construction) insurance (brokers, MGAs) and financial institutions (hedge funds, corporate finance, DFMs and IFAs) is particularly challenging. The market is such at present that it cannot be assumed that cover will always be available. Insurers are reducing their capacity and increasing their rate, which means simply maintaining their renewal book is a safer territory for them than looking at potentially “high risk” new business cases, which they don’t have enough capacity to accept anyway. This is the broker’s challenge on new business.
In terms of Directors & Officers, wider Management Liability and Cyber/Data insurances, these are also areas facing challenges. There are fewer insurers in the market and those who remain have restricted appetites. Consequently, we are facing reduced limits, cover exclusions and increased premiums. New start-ups and firms without a positive net worth may struggle to secure any terms at all for D&O. Cyber/Data has its own unique issues, including a huge growth in ransomware and phishing claims - not helped by the sudden requirement for insureds to embrace remote working, whether their IT, security systems and staff were ready for it or not.
So, we’ve established that it is tough out there now. How can we try and mitigate that, and assist you, our introducing brokers?
How to get the best results in the hard market
Our aim is to ensure we can provide Underwriters with all necessary information, along with a clear & succinct summary of the risk and your objectives:
Submission Requirements
- A current and fully completed renewal Proposal Form that is relevant to the client’s profession, ideally typed rather than hand-written - if an underwriter can’t read it, they probably won’t quote it. Any supplementary forms by profession must also be provided – eg Cladding for architects, Tax Mitigation for accountants.
- Supporting information such as specimen contract terms (detailing held harmless provisions or waivers).
- Report and accounts (essential for D&O).
- A fully confirmed claims experience, ideally from prior insurers, for at least 6 years (note, some insurers will require the full history) with a breakdown between claim settlements and legal costs. Please also provide details of any risk improvements implemented to avoid reoccurrence.
- A copy of the expiring policy schedule.
- A copy of the last completed Proposal Form if available.
- Details of all insurers that have been approached and their responses. It is essential you share this information with us, so we can best use our resource. Multiple presentations to the same underwriter from within the same group will not help us or the Insured.
- Let us know what your strategy is – we are on the same side. Is it an existing client? Is it a renewal to you, or are you attacking? Do you know the client well?
It is crucial we work with you to compile the best presentation on our first approach to the market.
Engaging with Lonmar Professions
The Lonmar Professions team are here to help you retain existing clients and win new ones. If you need assistance, please contact us. We have access to Lloyd’s of London & London Market insurers, and an experienced team of brokers with strong underwriter relationships.
We will be delighted to attend client meetings, either in person if circumstances and locations allow, or via a video or audio conference call. In some cases, you may wish us to involve us early in the renewal process as additional support.
For further information please contact
Sean Trent (author) Alan Newall
Divisional Director Managing Director
07970 009292 07725 960938