For the first time in well over a decade the Professional Indemnity insurance (PII) market is hardening. Whilst that may be a bold statement, it has been preceded by previous claims from others in the market that there are “signs of hardening” or “reductions in capacity” at various points over the last decade. There is little doubt that the PII market is now seeing a shift in ratings and premiums are on the increase.
So why are rates hardening after such a sustained period of low premiums? In recent years, additional capital has entered the insurance market from a variety of sources where investors seek to find a better rate of investment return than available on bonds and traditional platforms. This investment and abundance of capacity has driven down the reinsurance rates and in turn provided an abundance of capacity, which has caused falling or sustained low insurance premiums. Unlike other classes of insurance such as property and casualty where claims almost immediately manifest after a loss, there is a longer lead in on claims to become payable for Professional Indemnity, and so the lower premium climate continued even whilst matters were merrily being notified to underwriters.
A report published in the Insurance Insider in August of this year highlighted that 62% of Lloyd’s Syndicates that write Non-US PII are losing money. According to documents by the Lloyd’s Policy Management Directive, syndicates writing Non-US PII have made a £435m loss over 6 years, with Non-US PII labelled the second worse performing underwriting class at Lloyd’s. Of this “Non-US” business, by geography, UK PII accounts for 33% of the market. Canada accounts for 19%, Australia 17% and other non-US territories make up the remainder. Added to this, UK PII has traditionally been the least profitable.
Several Lloyd’s syndicates have already exited the market – with many others significantly reducing appetite and many composite insurers following and either withdrawing from the market for certain professions, or moving out of the SME sector and instead focusing on larger layered programmes. The reduced competition in certain professions has resulted in significant premium increases, reduced lines, and increased excesses being offered.
Whilst this may paint a depressing picture, it is not all doom and gloom. We must try and remember that the Professional Indemnity market has for many years been very competitive when compared to historic averages. It is also true that it is not necessarily to whom a risk is presented when broking terms, but how that risk is presented. Firms that spend a little more time with their presentations, to provide a greater insight into their practices and working with their Broker are generally reaping the reward. It is also important to engage a broker with genuine expertise and resources in the Professional and Financial Institutions market.
As a Lloyd’s Broker with a specialist London based Professional and Financial Institutions, with over £240m of premium in to the UK Market, Stackhouse Poland is able to support our clients and bring our experience to bear to benefit policyholders.
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