BIBA 2021 Seminar 4 Professional Indemnity – A hard market

14th May 2021

Professional Indemnity – A hard market

Chair: Peter Blanc, Group Chief Executive Officer, Aston Lark
Guests: Gareth Hemming, Chief Distribution Officer, UK General Insurance, Aviva; Jane Kielty, Managing Director, UK Retail, Aon and BIBA Board Member; Richard Webb, Director, Manchester Underwriting Management and Nic Brown, UK Sales and Marketing Director, Markel UK.

Market challenges

There was overwhelming agreement from the specialist PI panel and participating brokers that there is opportunity for insurers and brokers to work together to improve the challenges that the PI market is currently facing.

Panellists were united in the view that change, focusing on better outcomes for customers, was needed to improve the current PI landscape.  Potential solutions were cited as changing to longer term policies and looking at moving from claims made to claims occurring policies, along with furthering the role of brokers to clearly provide a full picture of the customers’ needs, position and culture.

Live polls during the session confirmed broker support for this with 37% believing that switching from claims made to claims occurring basis of cover would make PI more sustainable, and 34% believing that converting policies to a minimum term of three years would achieve this.

The panel highlighted the incredible value that PI provides but that challenges have hit the market in recent times with rate increases, and availability of adequate PI cover is a major challenge. In the live poll 49% of respondents felt that availability of cover was the biggest PI challenge, followed by 36% citing pricing of renewal terms.

Gareth Hemming summarised the consensus nicely with his comment that the market needs to sit down and work through the challenges together to take unified action.

Nic Brown supported this by identifying the big take away from the session as the ground swell of support to end the boom and bust cycle of PI.  Outlining that capital driving capacity isn’t the place to be and that a long term sustainable solution with right price, benefits and claims approach is where we need to be to build trust with customers.  Adding more value to customers through tailored products and claims management and risk management is important during these difficult times for SMEs as they emerge from the pandemic

Premiums

Nick Brown outlined that there hadn’t been significant changes to the SME risk space in the last 20 years, yet for much of that period rates were steadily eroded. The market is now going through a period of rapid correction at a time when SMEs can least afford it.  There was agreement that yoyo boom and bust pricing cycle is no good for customers and more stability is needed.   It was also acknowledged that although correction is needed, the hard market has come at the wrong time when businesses face the perfect storm of Brexit and Covid-19 challenges against the backdrop of poor market perception following the BI response.

The panel highlighted the need to achieve consistent pricing, although it was acknowledged that brokers will also work to get the best deal for their customer – not solely focused on price but also on cover and will work with them to prevent claims and manage risk.

The reducing number of new entrants to the market, insurers pulling out of the market and aspects of cover being withdrawn were all outlined as factors contributing to the challenges in the market along with the short-term capacity problem.

Gareth highlighted that a competitive market is a good market and that Aviva aims to give stability long term in terms of pricing and cover. He highlighted the importance of the customer being given the full information about their insurer and the product they are buying so that they can make an informed choice.

Richard Webb discussed different approaches to PI taken in Europe and Australia but highlighted that these all come with their own problems and are not a panacea.

Claims

The panel highlighted confrontation at claims stage as an area that needs improvement.

Jane Kielty outlined that clients want to receive advice on how to put things right or defend their position when something goes wrong – they want to protect their reputation and retain the customers business – getting into a legal argument with insurers is not the right way to go about that. Jane outlined that many want to move forward positively and if we can provide a response in these areas then clients would feel better about their insurance.

Richard Webb discussed a shift in the way PI claims are handled since mid 80s with cut backs in claims costs leading to outsourcing and therefore a breakdown in knowledge. Richard outlined that If you want If you want to get pricing right you need feedback from claims into underwriting.

He went on to explain that MUM is providing brokers’ E&O cover for Covid-19 and they have introduced a claims prevention helpline allowing brokers to speak to specialist legal support on any general Covid related issue – thus giving a hand holding service to help clients – this type of service is something that isn’t available from insurers like it was before.

Proposal forms

Much discussion about proposal forms was held with the outcome being that they play an important role in helping to build a detailed and complete picture of the client for the underwriter, and despite much external data available, only the client can provide much of the information needed around historical claims and the liabilities they assume in the course of business  However, there was strong agreement there is an important role for brokers to play in working with the client to articulate what their exposure is especially for risks that are too big or complex for online placement – that’s where the broker input really is needed.  Jane Kielty stressed the important or engaging early and having key conversations ahead of renewal.

Conclusions

Peter Blanc ended the session by saying that it was very encouraging to see brokers and insurers on the same page when it comes to solving the long term issues facing the PI market. He summarised this by outlining that professional businesses, looking for the best insurance advice, turn to professional, specialist brokers who in turn seek out professional insurers who are in the market for the long term.