As we draw towards the close of 2019, it is clear that the “hard insurance market” that has been on the horizon is finally upon us in some classes of business.
We are seeing the indicators in Property lines for high-risk clients as well as Management Liability policies. However, a hard market is most evident, discussed and reported in the Professional Indemnity (PI) market, particularly in the design and construct (D&C) and IFA’s sectors. In previous years Survey & Value (S&V) activities were a ‘lost appetite’.
The Lloyd’s of London Performance Review in the second half of 2018 identified non-US PI as the second worst performing class of business at Lloyd’s. Lloyd’s required that syndicates take action to put an end to the losses being incurred.
In the ensuing months, many insurers exited the non-US PI market, including the likes of Aspen, Brit and Chaucer. Other insurers removed themselves from individual sector markets, most notably the Design & Construction PI sector.
Those who continue to write non-US PI do so with increased stringency. Insurers are restricting their capacity, with a focus on profits rather than growth. This means that risks are being scrutinised more than they have been for the past 10+ years.
With insurers leaving the market and those that are left being limited and selective, supply of non-US PI has decreased, with no new entrants to the market to replace said supply. However, the demand for this type of insurance is the same as ever; basic economics tell us that prices will go up.
Whilst we have significant increases in PI annual premiums of up to 40-50 %, there are extreme examples where the increase has reached 200%. Price is not the only way that insurers are reacting to the changes in the market. Some insurers are looking for co-insurance on risks that they previously held in full, whilst others move from “any one claim” to “in the aggregate” policy wordings. There is a general reduction in line size and use of more limited wordings, all to limit exposure and usually for an inflated premium.
The Lloyd’s review is not the only cause of reduced capacity in the PI market. The Grenfell disaster has led to “cladding” being the buzzword on all D&C risks, along with other related professions. The other buzzword in insurance, much like every other industry is Brexit. These clouds of uncertainty naturally encourage a guarded approach from even the most risk taking insurers. Furthermore, the reinsurance market has had an impact on premiums, particularly in high risk sectors.
2017 is considered one of the worst years on record for losses due to natural disaster. With large scale hurricanes, earthquakes and forest fires causing damage. Insurers feel the brunt of these catastrophes, as do their reinsurers. Reinsurance companies provide cover to direct insurance providers. When losses caused by natural disaster present themselves, reinsurers and the reinsurance market are hit from multiple directions.
In order to balance their books, reinsurers distribute their major losses across their entire pool of risk. This means that insurers feel reinsurance premium increases in every sector across every class of business. This will have a negative effect on insurer’s cash flow and will lead to internal business and product reviews to recuperate these losses elsewhere. The areas of business with high financial risk or low profitability trends are likely to be the first to be selected for increased premiums, reduced capacity or even complete withdrawal. Hence, the Professional Indemnity market’s hardening is aggravated by the reinsurance market due to the unprecedented natural disasters around the globe in recent years.
Has your PI premium (or your clients’ PI premium) increased substantially? Would you be interested in an alternative opinion, with a view on the best cover your premium can provide your business rather than just the best price?
Lothbury UK understand the current market conditions and we are working with Underwriters on relationships and capacity for our clients well in advance of renewals. We are committed to understanding the requirements of our clients and obtaining sufficient coverage at the best price possible.
For more information on what we can do for you, get in touch.