04/11/2020
Professional Indemnity Insurance: Hardening Markets
Following our June article, Account Executive Ian Limeburner reveals that UK businesses are increasingly feeling the effects of a hardening Professional Indemnity Insurance market. In this update, he explains what that means and what you can do about it.
At One Broker, we’re finding organisations that have recently renewed their Professional Indemnity (PI) insurance – or are in the process of obtaining renewal quotations – have seen significant changes in the market.
What that means is, if your business carries PI insurance, whether by legal or contractual requirement, you should be prepared for increased premiums, potentially lower limits of indemnity and restrictive wordings. In some cases, certain professions may not be able to obtain renewal terms at all.
Why?
Things have been changing in the PI market for several years as a result of numerous factors.
For instance, exposures for non-conforming building products – following the Grenfell Tower fire – have created major potential claims exposure for the insurance market. It means that insurers are wary of providing PI for construction firms. Similar risks have been identified in other sectors too.
It’s also important to note that PI is known as a ‘claims-made’ product. That means your current insurer is liable for ‘issues’ that occurred before the current policy was put in place (known as ‘retroactive cover’). If a claim is notified during the current policy period, the current insurer is considered liable (assuming there has been continuous cover), even if the work giving rise to the claim was undertaken years earlier. It’s making insurers cautious about providing PI.
In contrast, an alleged injury or illness to an employee or member of the public (Employers’ or Public Liability), is dealt with by the insurer “on risk” at the time the alleged injury or illness.
These factors, compounded with the impact of coronavirus, means that some insurers are leaving the PI market altogether, while others are restricting the options available.
Let’s take a look at what that means for your business.
What’s the impact on my Professional Indemnity Insurance renewal?
Increased premiums
Insurers trying to ensure they can cover the cost of potential claims in the year ahead. As such, insurers are increasing the price of cover to protect their own businesses.
What does that mean for me?
Expect price increases. While these rises are small for some businesses, others are seeing significant increases.
What can I do?
Discuss the situation with your finance director or key decision-makers so they can make sure they’re prepared for the increase.
Also, speak to your broker. They may be able to seek a lower premium and better terms with a different insurer.
Increased excess
We’re seeing insurers protect themselves further by increasing the level of excess on most policies. Insurance companies want to be sure they’re not going to cover the whole cost of your claim.
What does that mean for me?
You will have to pay more of the claim before your insurance kicks in.
What can I do?
Shop around for another policy with a lower excess. However, be aware that the premium is likely to be more expensive. Top tip: Try to keep sufficient funds in reserve to cover the excess in the event of a PI claim
Reduced cover
You may not be able to secure the level of insurance you had previously.
One of the biggest changes we’re seeing right now is a shift from ‘any-one-claim’ cover to ‘aggregate’ cover.
For instance:
- i) £2m “any one claim” limit = There is no limit on the number of £2m claims your business can make in the policy period. 10 £2m claims could result in £20,000,000 of claims payouts.
- ii) £2m “aggregate” limit = The maximum insurer exposure is £2,000,000 for the policy period for any number of claims.
What does that mean for me?
This may cause issues with your governing body or clients, who may require higher limits of cover or ‘any-one-claim’ limit.
Additionally, construction businesses will see full cladding and fire safety/combustibility exclusions imposed on their policies, in the aftermath of the Grenfell Tower disaster.
How do I manage it?
First, speak to your governing body. You’re unlikely to be unique in this – other businesses in your sector may be struggling with a similar issue. They may be able to advise on the best course of action.
Second, speak to your clients and explain the situation. Chances are, they are likely to experience the same situation if they also have Professional Indemnity Insurance, but there may be contractual issues that need to be discussed.
Increased scrutiny
While insurance markets tend to be nervous in a recession, this is heightened by the pandemic. They are looking for reassurance that you are taking steps to avoid making a claim while remaining operational.
What does that mean for me?
You will have to answer more questions when seeking Professional Indemnity Insurance.
We are seeing insurers asking clients how they are maintaining the quality and accuracy of their work in the face of furlough, illness, remote working and redundancies. Typically insurers are asking what quality assurance is in place, how many staff are furloughed or being made redundant and in which roles.
They’re also asking about cyber security enhancements, while your employees work from home, potentially using their own tech.
What can I do?
Start the process of preparing for renewal early. Your broker should speak to you about the information you will need to supply and help you prepare with plenty of time.
Delays
Given all of the above, we’re also seeing delays in the processing of renewals and new applications. Insurers are also working with reduced teams during this time, while handling an increased level of administration and checks.
What does this mean for me?
You have less time to evaluate your different options because your proposal may arrive close to your renewal date.
What can I do?
Start preparing at least four weeks before your renewal is due.
This gives you a chance to fill in forms and arrange supporting paperwork with your broker. The insurer will then have a chance to review before your cover expires.
You may also be able to arrange a cover extension for 14-30 days with your current insurer (depending on the company) while you consider your options.
Seek independent advice
An insurance broker will work with you closely throughout the renewal or application process. They will ensure you secure the best combination of premium and cover basis available, and preparation is critical.
As a fully independent insurance broker, One Broker can seek cover from the available insurance market for you, from a broad range of suppliers.
We are keeping a very close eye on this issue for the benefit of our clients. If you would like to discuss your specific requirements in greater detail, please get in touch – we’d love to help.
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