In this post, we are looking at how professional indemnity (PI) insurance, cover vital to those in the business of providing professional advice, has been affected by a rise in demand and drop in availability, brought on by a hardening of the insurance market that’s been further accelerated by the COVID-19 pandemic. We’ll be sharing advice on what to expect when attempting to obtain PI insurance, and providing expert tips on securing the cover you need to protect your business.
What is a ‘hard insurance market’?
A hard insurance market is characterised by a high demand for insurance cover, combined with a reduced supply. During challenging times, insurers impose strict underwriting standards, and issue fewer policies. Premiums tend to rise, and insurance providers are less inclined to negotiate terms. Where risks are considered higher than normal, some providers may even refuse cover altogether.
What has caused the insurance market to harden in the UK?
In recent years, the professional indemnity market has been a buyer’s market (a ‘soft’ market), with ample insurers willing to compete for business. This competition kept premiums low. Over time however, premiums became unsustainably low, and in certain sectors, particularly in construction where heavy losses brought about by events such as the tragedy of Grenfell, this resulted in insurers leaving the market.
During the COVID-19 pandemic, the situation was only aggravated further, with a general sense of fear and a more protective approach causing certain types of cover to become much more difficult, and expensive, to obtain.
Insurance losses as a result of the pandemic also have an effect on capital, as does a reduction in investment returns. A reduction in insurers’ capital is known to reduce underwriting capacity, another contributing factor to a hardened market.
How has the hardening market affected professional indemnity cover in particular?
Professional indemnity (PI) insurance is vital for anyone in the business of providing professional services, such as advice or design solutions. The cover provides protection against losses resulting from legal action in the event of a negligent act, error or omission. Breach of contract, libel and slander can also be covered by PI insurance.
The large scale catastrophes of the past few years have led to a significant rise in PI claims. The surge in demand for cover resulted in a considerable market fluctuation, leaving insurers footing hefty bills for additional claims.
In the past year alone, the PI insurance market has lost six providers, with no new replacements set to take over, at least in the near future. To further exacerbate the situation, those insurers that have remained in the market have introduced new measures to help mitigate their risk exposure.
What to expect when trying to arrange PI cover in the current hard market
The new measures introduced by professional indemnity insurers could significantly affect the amount of time it takes to agree terms for a policy, as well as the cost of that policy. Such measures may include:
Requests for additional information
Ahead of the renewal date, insurers have started to request more detailed information. Expect to see requests for details of your business operations, supply chain processes and current risk management methods.
Quite considerable restrictions are being imposed by insurers on policy renewals. These include limiting cover to a single amount; setting a higher self-insured excess; excluding consequential or economic losses, and removing a range of policy extensions, such as cyber cover.
In an attempt to compensate for loss of profits following increased claims, insurers are increasing their rates. So you can expect to see higher premiums in some cases.
Top tips on securing professional indemnity cover in a hardening insurance market
If professional indemnity insurance is critical to protect your business, you’re going to need to find a way to secure cover. Whilst it may not be as straightforward as it has been, and certainly may be more expensive than you have been used to, with the right support and approach, it should not prove impossible altogether.
The following tips should help you obtain the cover you need:
- Make renewal enquiries early
Definitely don’t leave renewing your PI cover till the last minute. If you need to provide more detailed information than usual, you’ll need extra time to collate it all. You’ll also benefit from more breathing space to obtain alternative quotes.
- Demonstrate that you are actively managing risk
If you can prove to your insurer that you have stringent risk management processes in operation, then they may be more inclined to be favourable with your policy quotation. Ensure you have in place failsafe internal processes and standards to ensure risks are kept to a minimum; robust cashflow measures; legally sound client and supplier contracts and efficient supply chain management methods.
- Use an insurance broker
By using an insurance broker to source your professional indemnity cover, you’ll have access to the expertise required to secure the best value cover that meets the specific needs and risks of your business. Your broker will ensure you are supported throughout challenging times, making sure wherever possible that you are suitably covered, even in a hardening market.
Professional indemnity insurance from Robert Gerrard
Are you looking to secure or renew professional indemnity insurance? We’re here to help. Get in touch today and we’ll help you explore your options, and guide you through the process of obtaining the cover you need to protect your business.