The professional indemnity insurance (PII) market in the UK has changed dramatically over the last ten years. We initially saw significant rate-cutting and an oversaturated market, but the last several years have witnessed a mass exit of insurers with no new ones to take their place.
As we begin 2021, we reflect on these recent changes and have outlined how we can expect professional indemnity to move forward in the coming months.
Multiple events affected the insurance industry in 2019. The uncertainty surrounding Brexit impacted the property markets, and the Financial Ombudsman Service (FOS) compensation limit was increased to £350,000. This led to a contraction in the Independent Financial Advisors space which encouraged some insurers to quit the sector.
The Grenfell disaster in 2017 and the Bolton student accommodation fire in 2019 resulted in a combustible material ban in the construction sector, leading to increased regulatory scrutiny and difficulties passing claims for construction projects.
HMRC became tougher with accountancy firms and their tax avoidance schemes.
Less experienced brokers who previously took advantage of over-capacity in the market were outperformed by the specialist PII brokers who could provide the best pricing and coverage.
Early last year, underwriting rates rose sharply again, but then the coronavirus pandemic hit the world.
Insurers wanted to know how firms were dealing with the pandemic regarding furloughing employees and business loans, for example. There was also the practical aspect: as underwriters had to work from home, traditional broking skills became harder to use in negotiations, and the speed with which proposal forms could be examined, premiums produced and final negotiations completed was impacted.
Additionally, no new replacements were entering the market to help with reduced capacity.
Unfortunately, we're still waiting to see the light at the end of the tunnel when it comes to COVID-19, and we are unlikely to witness any drastic changes to the market.
General insurance brokers have been one of the worst-hit professions by the pandemic. During the first half of 2020, it wasn't clear if they would be badly affected by allegations of negligence for rejected business interruption claims, but the Supreme Court has substantially allowed the Financial Conduct Authority's appeal on behalf of policyholders. This completes the legal process for impacted policies and means that thousands of policyholders will have their claims for coronavirus-related business interruption losses paid. It comes as welcome news for policyholders, brokers and PI insurers.
New capacity in the market has appeared at the start of 2021, but some professions will probably have to wait some time before underwriting rates fall.
Many businesses are still working remotely and are likely to remain this way for months to come, possibly implementing this into their long-term plans. Insurers will look favourably on where this has been managed effectively.
However, working from home carries its own risks. Home networks are less secure, and there is increased exposure to cyber-crime. Insurers will focus on how businesses effectively mitigate their cyber risks.
Businesses that have furloughed staff may be more at risk of mistakes due to staff shortages. Insurers will examine how this is being handled, and they will probably request information on how furloughed staff are to be reintegrated successfully back into the business.
There is a heavy focus on how firms are ensuring a safe environment for their employees, including how they are managing employee wellbeing (stress, mental health, access to support etc.).
The UK economy is also in a recession. During these financial downturns, there is usually an increase in PI claims as people look to blame professionals. Businesses need to keep track of essential information like effective supervision and record-keeping as part of their risk management system.
Using a good specialist insurance broker in these uncertain times is crucial. They have the expertise to guide and support you when renewing in 2021. If you would like to discuss your PI insurance with one of our experts, please call us on 0345 251 4000.