In recent years anyone purchasing professional indemnity (PI) insurance as an essential part of their risk management programme is likely to have found their renewal process to be a lengthy, drawn out, and expensive process. Very few professions have escaped the hard market conditions, with those in the construction sectors, independent financial advisers and insurance brokers hit most harshly.
Of course, the Grenfell Tower tragedy in 2017 has had a huge impact upon clients in design and construction and connected industries, but it is not the sole reason for the dramatic shift …historically low premiums for all professions have become unsustainable, and an upturn in the number of claims pushed the market into action.
The Lloyds thematic review in 2018 also added pressure by identifying that around two thirds of insurers were making a loss and highlighting PI as one of the worst performing classes of business. As a result, clients (and brokers) have been experiencing the most difficult market conditions for 15 years as insurers reassess the sustainability of their clients.
The Covid-19 pandemic compounded this further as insurers became wary of potential additional claims resulting from things such as remote/unsupervised working and additional safety requirements.
So, what can you expect from your renewal process and what can be done to try to ease some of the pain?
Our frequently asked questions have been put together to support you and offer practical advice for your renewal process.
Q – What action have insurers been taking in respect of PI renewals?
A – Those in the hardest hit sectors could expect to see cover restrictions imposed in the following ways…
- Restricting negligence only policy wordings
- Restricting claim limits to aggregate limits
- Increasing excess levels and premiums
- Reducing limits(e.g. reduced cover from £5m to £2m) increasing the need for excess layers
- Including defence costs within the aggregate limits, rather than being covered in addition
- Applying more onerous exclusions; cladding exclusions, fire and combustibility exclusions, and EWS1 (External Wall Survey) exclusions have become market standard for the construction sector
- Offering cover on a rectification only basis for some clients
At its worst, those clients in particularly high risk sectors have on occasion found themselves unable to source cover.
Q – We have contracts requiring us to hold certain PI cover (e.g. an any one claim limit of indemnity) for a set period from completion of our work, however we have only been offered aggregate cover this year – what can we do?
A – The current market conditions mean that cover is being heavily restricted for some professions. It is wise to establish whether your contracts contain language such as “whilst commercially available at reasonable rates” or similar, to assess whether this provides scope to accept the more restricted option. Alternatively, you may need to negotiate with your end client to establish if the contractual requirements can be amended. You should then work with your Partners& adviser, in collaborations with your insurer to consider what potential alternative options may be available, such as ‘round the clock reinstatements’ or additional layers to the programme which may be acceptable to your end clients.
Q – What can be done to manage the renewal process and get the best possible outcome?
A – Be sure to discuss the current situation with your Partners& adviser well in advance of renewal focussing on the following…
- Provide as much information as possible – giving the proposal form adequate attention as gaps and missing detail will cause delays and could lead insurers to decline. In addition, be prepared to provide context to your responses – whilst PI is a proposal form led class of business, it is fair to say that the form cannot capture all elements of your business. Speak with your Partners& adviser to ensure that they fully understand your activities and any risk management features that will help assess your risk.
- Agree the renewal strategy well in advance – ensure that you know exactly what your Partners& adviser is going to do for you at renewal. If a market exercise has been done in the last two years, they may recommend simply approaching your holding insurers initially – further consideration to the wider market can then be given once the renewal terms have been received. Alternatively, you may feel that a full exercise is required. Either way, ensure you and your Partners& adviser are agreed on what the initial strategy will look like and why.
- Prepare yourself for delays – the knock-on effect of the hard market is that insurers are inundated with enquiries and so the process is likely to take longer.