A hardening of the Professional Indemnity Insurance (PII) market.
From the exception of those firms that provide lending valuations, the majority of RICS-regulated firms have for some time, enjoyed access to competitively priced PI insurance. PI market conditions have been favourable and capacity amongst insurers has been plentiful, and renewing PII has been relatively straightforward for most.
However, conditions are now changing and the market is hardening for the first time in many years.
Why is this happening now?
It began with the intervention of Lloyd’s of London, following a review which highlighted the poor financial performance of PII underwriting generally. Non-US PII was the second least profitable class of insurance at Lloyd’s, who have since stated that growth needs to be secondary to performance. Consequently, many of their syndicates were told to write less business whilst they address their deteriorating loss ratios.
As a result, we saw instances where underwriters declared themselves ‘full’ and unable to take on new business and to a lesser degree, this also included renewal accounts.
What is likely to happen?
With reduced capacity in 2019, there is likely to be a significant shift as insurers look to increase rates or possibly even move away from those risks or professions that have underperformed.
The PI market has lost half a dozen insurers from 2018 and up till now, we have not seen any new entrants to take their place and it is unlikely there will be many throughout 2019.
Since the Lloyd’s announcement, we have seen specialist PI insurers withdrawn from the market, as well announcements by others declaring they will no longer be transacting PII new business and it is anticipated that there may be further similar announcements before 2019 is out.
These developments could lead to some firms experiencing a delay in receiving quotes, suffering unexpected premium increases or more restrictive coverage. Firms should therefore not assume their PII renewal will be a simple formality. What does it mean for PII buyers?
There are steps that buyers can take to mitigate the effects of a hardening market. It sounds obvious, but please remember not to leave it until the last minute to submit your proposal form. Some firms submit proposal forms late, thereby not securing their cover until the last few days. If you leave it until the last minute to submit your form, or to agree terms, there is always a risk that circumstances within your firm, or the market generally, could change in a way that disadvantages you.
Being on the front foot enables you to prepare your information and presentations to your broker, this in turn enables them to negotiate more strongly on your behalf.
What can PII buyers do?
PII spend may account for well in excess of 5 per cent of fee income and can be the second biggest expense after pay roll, and yet, for many firms, PII is seen as a necessary evil and is only considered a few weeks ahead of renewal at which point the objective is to renew as quickly and as cheaply as possible.
Buyers need to stay in contact with their insurance broker so that they can remain up to date with any foreseeable changes in insurance rate and insurer appetite. This should help budgeting for any likely rise in premium and prepare for the renewal process.
The proposal form
The proposal form is a representation of your business. Ensure that it is neatly completed, consistent and legible. Poor proposal forms are unlikely to result in a favourable response from insurers. If you wish to submit additional information to demonstrate how your firm exceeds its peer group in terms of risk management or to simply provide a more comprehensive overview of your business, this should be set out on your headed paper and attached to the proposal form.
Manage the relationship with your broker
Foremost, use a broker with a demonstrable understanding of the surveying sector. Working with a specialist broker will help achieve a better deal at renewal and perhaps, more importantly, will ensure that you get the guidance and advocacy required in the event of a claim.
Ask about other firms the broker acts for, ask for testimonials and evaluate the quality and frequency of the risk management guidance they publish and determine their level of contribution and presence in your sector. This is ever more important for larger practices, or for those operating in high risk areas such as secured-lending valuation work.
Placing your broker under competition has its place, but doing it year after year and if not managed correctly, could result in insurers taking a jaundiced view of your firm.
Invest time in the renewal process and manage the relationship with your broker and insurers sensibly as when strong relationships exist, they can help deliver better results at renewal and during claims negotiations.
While price is important, the most important rule is to ensure that you are fully aware of what you are buying. You should be comfortable with the financial stability of your insurer(s) and with your broker’s ability to service your business throughout the policy year.
Be prepared for additional questions from insurers and respond promptly and accurately. Ensure that any claims or circumstances are reported to insurers ahead of renewal. Ask all principals within the firm whether they are aware of any matter that may lead to a claim before you submit the proposal form.
If you’ve had claims or notifications, provide as much information to your broker as possible. Insurers accept that firms have claims and notifications but they will want reassurance that you have learned from past mistakes, so provide notes on the steps you have taken within your business to prevent the re-occurrence of a claim.
Presenting a long list of notifications at renewal may not make your PII any cheaper but if you fail to notify insurers of a matter that could lead to a claim and that claim is subsequently avoided by insurers, the costs, which will be borne entirely by your business, could be ruinous.