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The Storm after the Storm?

2019 proved to be one of the most difficult for UK buyers of Professional Indemnity Insurance (PII). Several factors, across various sectors, created a perfect storm in the market which came as a shock for any policyholder that was not pre-warned by their Insurance Broker.

Written by Paul Brown on 30th January 2020

The Storm after the Storm?

2019 proved to be one of the most difficult for UK buyers of Professional Indemnity Insurance (PII). Several factors, across various sectors, created a perfect storm in the market which came as a shock for any policyholder that was not pre-warned by their Insurance Broker.

The factors influencing the hardening of the PII market included the following:

Lloyds Market Review

The Lloyds Market Review of 2018 saw a requirement for the corrective underwriting of the most unprofitable classes of business written at Lloyds. PII had been unprofitable for many years and Lloyds made it clear that, unless it was satisfied that it could be returned to profitability, it would not agree to the class being written at all.

As a result, several Lloyds syndicates exited the UK PII market, reducing capacity and leaving the remaining markets free to introduce a significant uplift in rates. There seems to little appetite to loosen underwriting controls in 2020. Further syndicates have left the market and it is possible that more will follow.

Construction - The Grenfell Effect

The industry-wide review following the Grenfell Tower tragedy led to increased scrutiny in this sector. Initially cladding contractors were the subject of increased Underwriting attention, but there has been a ripple effect across other construction professionals. Cladding related claim notifications increased exponentially leading to insurers allocating substantial reserves against open claims.


Independent Financial Advisers - FOS Complaints Limits Increase

On 8 March 2019 the Financial Ombudsman Service Limits changed. As a result, the compensation limit for actions on and after 1 April 2019 was increased to £350,000. This caused Markel and Nexus to immediately pull out of insuring IFAs, leaving a very limited number of remaining Underwriters to harden rates further.

Accountants - Tax Avoidance Schemes

Following HMRC stamping down hard on tax schemes many companies and individuals saw HMRC coming after them for tax avoidance. Accountants, who promoted such schemes as legitimate tax mitigation, have been embroiled in the fall out. This has led to increased PII risk exposures and concerns for PII Insurers operating in this sector.

Chartered Surveyors - Brexit Delay

As you might expect any article that seeks to explain negativity, within a sector, needs to feature a Brexit angle. However, it should come as little surprise that the potential loss of confidence in the general economy, the fall in the strength of the pound and falling residential property prices are cited as further factors affecting confidence in the Chartered Surveyors’ PII market. In 2019 Allied World Assurance Co (AWAC) decided to withdraw from insuring any Chartered Surveyors who undertook any valuation work.

2020 Vision?

2019 saw rapidly increasing premiums and reductions in cover. It was a time when experienced and well connected PII brokers came into their own by ensuring their clients were able to purchase adequate protection, at an affordable price, in very difficult market conditions. In contrast those Insurance Brokers who operate a sales model of random mailshots and hard selling telesales operations found it very hard to deliver promises of cheaper premiums.

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. For underwriting rates to soften there needs to be new capacity and, as we enter the new, that is looking more and more unlikely. If capacity shrinks still further, 2020 could well be a repeat of 2019.

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 offer from Underwriters”.

To plot a course through the difficult PII market contact Neil Chatburn ACII on 01332 545 720 or email Neil.Chatburn@franklands.co.uk

Source: http://www.mgbib.com/wp-content/uploads/2019/12/MGB_IT_2020_calm_after_the_storm.pdf

 

 

 

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