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Professional Indemnity Premiums Set to Rise as market Capacity Reduces

Other than for a short period following the financial crisis, over the last decade Professional Indemnity Insurance premiums have tumbled as underwriters fought to maintain and grow market share. 
 
However, a review by Lloyds of London has now confirmed that UK Professional Indemnity Insurance (PI) has been unprofitable for most insurers, for many years, making it the second least profitable class at Lloyds.

Written on 19th February 2019

Other than for a short period following the financial crisis, over the last decade Professional Indemnity Insurance premiums have tumbled as underwriters fought to maintain and grow market share.  However, a review by Lloyds of London has now confirmed that UK Professional Indemnity Insurance (PI) has been unprofitable for most insurers, for many years, making it the second least profitable class at Lloyds.

As a result, Lloyds has issued an ultimatum to the syndicates that they need to put in place an action plan for loss-making PI portfolios to return them to a sustainable profit. If these action plans fail to satisfy Lloyds, it will simply not agree to the class being written.  Already a number of substantial Lloyds Syndicates have exited the market including Channel 2015, Brit 2987, Aspen 4711, Hamilton 3334 and, most recently, Barbican 1995.  More syndicates are expected to pull out of this class and move capital to more profitable classes before the end of the year.

The forecast for 2019 is bleak as those underwriters remaining in the market look to adjust their portfolios and change their previous appetite towards this class of business.  Capacity is likely to become an issue resulting in increased premiums for many clients.  Prudent Insurance Brokers will prepare clients for increased premiums in 2019 and few professions are likely to be immune from the increases.

Some firms may find it difficult to obtain competitive terms and the position is aggravated by reduced excess layer capacity, which means that those firms that buy additional coverage will pay more.

Due to the longevity of this recent soft PI market cycle, many PI Brokers have never operated in hardening market conditions and Broker selection will now be of paramount importance. Franklands’ Client Director, Neil Chatburn ACII, has specialised in placing PI business for over 30 years and has acted for clients through many hard and soft market cycles.  Neil said “as PI specialists we always need to anticipate the market cycles and react accordingly.  There is still a market for the well-connected PI Broker, with many years’ experience, who provides Underwriters with a detailed presentation of a risk.

In a hard market we find that spending more time on our client presentations, to provide a greater insight into their practices, is usually rewarded with a better premium”.

To plot your course through the turbulence of the PI market contact Neil Chatburn ACII Neil.Chatburn@franklands.co.uk. 

Source: Insurance Times / Whom The Bell Tolls / Jan 2019

              Lockton International / Professional Indemnity Insurance: how to navigate the changing market

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