Piers Winton of Paragon Insurance Brokers considers the current landscape for professional indemnity insurance (PII) renewal and provides some top tips on getting the best deal for your firm.
Professional indemnity insurance (PII) remains in a volatile state and although the recent significant premium increases of 20% to 30% have slowed down, the cover is changing in other ways.
Insurers’ concerns are moving away from achieving a sustainable technical rate (the premium paid justifying the risk taken on) and are focusing more on the ‘so what’ of COVID-19.
While the remote working environment has not directly contributed to premium increases, it is the long-term effects of the past year that insurers worry about, exacerbated by the complexities of ‘Brexit-fall out’ and recession.
These concerns are taking shape in two main areas:
- Were the additional supervisory measures and remote case file reviews put in place effective?
- How have firms been affected financially and as a going concern?
This has resulted in additional business resilience and COVID-19 questionnaires, personal guarantees (PGs) from firms on excesses, premiums and run-off, additional stand-alone uncapped excesses for particular losses and risk management questionnaires (RMQs).
What does this actually mean for my firm?
Whether you renewed your PII in October or you are in the process of completing proposal forms now, expect to see changes from the last ‘turn of the handle’.
Will there be a reduction in cost?
Underwriters are still looking to apply rate uplift in premiums so don’t expect reductions yet. A number of firms experienced a downturn in revenue over the past year and this will be taken into consideration by underwriters come renewal.
However, remember that underwriters do not look solely at the past year.
Claims from PII tend to arise from work completed three or four years ago, not in the current policy period (brokers and insurers talk about ‘long-tail liability’—this is what it refers to).
Underwriters look at a firm’s last completed three financial years so a reduction in revenue last year will not automatically equate to a reduction in premium this year.
Are more forms likely?
Expect a more in-depth renewal process, including requests for additional information, RMQs, full claims histories and full proposal forms. The last two are something many firms have been irritated by.
In past years many underwriters only required short proposal forms; confirming staff numbers, revenue, work split and claims.
Like all industries, financial or otherwise, management teams are looking closely at business models.
In insurance, underwriters must show they have carried out a full and complete underwriting exercise. This requires a full and complete proposal form, particularly as so many firms have had to re-organise the way they operate, which underwriters need to understand.
Historically, underwriters have only asked for claims prints going back six years. However, expect underwriters to ask for 10 years of claims prints. The reason for this request is so insurers can see how a firm was impacted by the last global financial crisis in 2008 – when claims came to fruition circa 2009, 2010, 2011.
Obtaining past claims is something your broker will be able to do on your behalf.
How can I ensure my firm gets the best deal?
Choose the right broker and insurer for your firm
Ensure your renewal presentation is in front of the right insurer for your firm’s structure.
Different underwriters will have different ‘risk appetites’; from a macro perspective this is steered by partner numbers, revenue and work split.
You may not be getting the best renewal terms simply because your broker has limited market access and cannot show your renewal to an insurer whose risk appetite aligns with your structure. Specialist conveyancing firms are most exposed to this.
There are a number of specialist brokers with access to facilities with no ‘cap’ on work types. However, your broker may not be able to approach them (or will not) for fear of losing business.
PII remains an expensive overhead for all firms – ensure you are speaking to the right broker and be aware of sub-broking. This is when your broker will pass your renewal to another broker to access certain facilities (as highlighted above). This will lead to additional costs to the firm as there is an increased chain of brokers, but not an increase in the value added.
Take the time to prepare
As mentioned, don’t shy away from RMQs or any additional forms you are asked to complete – give them the time they require. Remember, insurers are taking on millions of pounds of liability, and paying significant claims as a result.
Your proposal form and claims will show underwriters your firm’s history. An RMQ will:
- give insurers an understanding of how you are avoiding future claims,
- provide them with a holistic insight into your firm, and
- show them that you are a preferred risk.
For the first time in a decade this has become a sellers’ market—insurers are not competing to write or even retain business. That said, they too have budgets to meet so show them you are a risk-aware firm who does not just pay lip service to insurance.
Finally, start the process early. If you are unhappy with your terms and try and engage a new broker/underwriter for alternatives five days before your renewal date you will be wasting your time.
Have realistic expectations for your renewal. New insurer capacity will come to the market and premiums will reduce. However, this is not the year and it is important to understand that losses, both from a severity and frequency perspective, remain high in PII.
Be cautious of insurers whose terms are 20% below the rest of the market. This happened in 2018 with a huge number of firms moving to underwriters whose rating models were unsustainable, forcing them out of the market (as claims hugely outweighed premiums) leaving firms without cover.
Insurers who are forced to leave the market have no obligation to provide a premium refund.
Finally – understand exactly what your policy covers and the obligations on your firm. Are there PGs or separate standalone excesses? Lean on your broker for guidance or speak with other brokers to provide you with a more rounded insight when making decisions.