A hardening PII market and what it might mean for you

The majority of professional services 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 have now changed and the market continues to harden. 

What has to happen?

With reduced capacity, there has been a significant shift as insurers increase premium rates and 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.

We have seen specialist PI insurers withdraw 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 have led 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 can PII buyers do?

PII spend in some cases may account for in excess of 5 per cent of fee income and can be the second biggest expense after payroll, 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.

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 on 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.

Stay informed

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 in 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 your 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.

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 responsive

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.