07 March 2023
PI Market Update
In our last Market Update, we spoke of the first green shoots of recovery in the Professional Indemnity (PI) market and this theme continued into the second half of 2022 and beginning of 2023.
After several years of hard-market conditions, the PI market has stabilised significantly. Insurers have now largely undertaken the required remedial action to their portfolios following a decade of excess capacity driving premiums to an unsustainable level.
Whilst the starting point for most incumbent insurers in renewal negotiations will be to push for a small rate (premium vs revenue) increase, premiums have begun to level off. Where insurers were typically achieving 30-40% compound growth on their renewal books in recent years, there was less pressure to write new business. However, a renewed appetite for income amongst insurers has injected long awaited competition back into the market and, for the right risks, we have been able to achieve premium reductions after several years of steep increases.
Whilst insurers appear to have ambitious growth targets for 2023, they remain selective about the business which they write so we work hard with our clients to compile a thorough and compelling submission to the market. There appears to be an increased willingness from underwriters to entertain a well-considered and constructive ‘broke’ as opposed to the less amenable approach of recent years.
As such, we have been successful in challenging insurer’s pre-conceived perception of certain risks, often aided by direct interaction between insured and insurer, recognising that our clients are best placed to portray their business in the most favourable light. Even for clients with historic claims issues, we have achieved improved renewal outcomes where we are able to demonstrate improved risk management and measures implemented to prevent a re-occurrence.
Cladding and Fire Safety
For construction related professions, the Fire Safety and Cladding landscape remains challenging. It was hoped that changes to the building regulations in 2018 would bring an element of clarity in respect of the use of combustible materials allowing the industry to begin to move forward. However, the Building Safety Act 2022 has created understandable hesitation amongst insurers who were considering removing the exclusions and restrictions that have been imposed since the Grenfell tragedy. In particular, the increased liability periods of 15 or potentially 30 years has increased the window of retrospective exposure faced by professionals and their insurers.
Nevertheless, we have seen insurers begin to reintroduce elements of cover for Cladding and Fire Safety for new projects facilitating the required remediation works to rectify non-compliant buildings. The International Underwriting Association (IUA) has released a number of clauses in an attempt to standardise the cover available across the market although insureds should be wary that some of these may be a step backwards from previous cover, especially where there is a retroactive date imposed or minimum requirement are imposed with respect to works funded by the Building Safety Fund.
Outlook
As mentioned in our previous update, optimism over the past few months must be balanced against the macro-economic environment. Whilst the war in Ukraine may not have a direct impact on the PI market, estimated loss of over GBP1bn to the Lloyd’s market and over GBP10bn to the wider global insurance market will inevitably have a ripple effect through all classes of business.
Meanwhile, insurers will feel the consequences of inflation on their cost base; whilst it would not be practical for them to keep pace with inflation, it would be fair to assume that they would factor in increases of some sort into their ratings.
Further, any distress at a recessionary level has always historically lead to an increase in claims against professions. Again, insurers will be watching closely at how this develops. It may start to shape their views on certain work that is exposed to recessionary losses e.g. Conveyancing for Solicitors, Survey and valuation for Surveyors and increased litigation in the construction sector.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.