5-Star Awards 2021: Professional Indemnity Insurers

 

In its recent Professional Indemnity Market Update, Willis Towers Watson pointed to a widespread reduction in capacity as a significant hurdle in a market that has been hardening since 2017, noting that “reductions from $20m to $10m, or even as little as $5m in some cases, are common”. Premium hikes are also rampant in today’s market, according to WTW, which pointed out that rises of 50% and 100% are common and noted that “we have even seen increases as much as 2,000% in some extreme cases”. 

 

Events in the London market have also had an impact. When Lloyd’s undertook its Decile 10 review in 2018, PI was identified as one of its worst-performing classes, which led to a big drop in capacity for the Australian market that continued into 2020. Insurers responded by being more selective about who they will cover; others opted out of renewing binders in certain professional indemnity markets. 

 

Yet the need for insurance for those providing advice or a service, in the event of legal action claiming malpractice or misconduct, has never been more keenly felt. Not only is PI insurance a mandatory requirement for professions such as lawyers, doctors, real estate agents and stock agents, but it’s also becoming increasingly critical for a wide range of other occupations, from contractors to copywriters. The cost of being uninsured or underinsured can be crippling in the event of a claim – it can even put companies out of business. 

 

“Clients who do not understand why they cannot get terms or the significant increase in their premiums depend on a broker’s advice”
-Paul Burton, PI Direct Insurance Brokers

 

The hardest markets 

Two segments of the PI market have been particularly hard-hit. Driven in part by a surge in shareholder litigation, directors & officers (D&O) cover is suffering from a vola-tile and reactive market. A September 2020 report by the Institute of Directors, Marsh and MinterEllisonRuddWatts noted that a host of local and overseas insurers have with-drawn from the D&O market and estimated that capacity in the London market alone is 50% less for ASX-listed companies than it was in 2017. 

 

The construction sector has also been battered by insurers limiting their cover, according to the WTW report, which noted that “the construction industry has borne the brunt of this tightening as insurers seek to limit cover for contractual liabilities that extend risk beyond the usual standard of care that is expected of professionals in the sector”. 

 

There are notable exceptions – the Victorian Government announced in February that it had taken out $6.9m in professional indemnity insurance coverage for surveyors, project managers and other contractors engaged in the state’s $600m cladding rectification works on faulty high-rise buildings. The exclusion-free cover was a rare and welcome phenomenon at a time when many PI insurance policies contain exclusion clauses for defective cladding because of the potentially astronomical cost of claims. 

 

“Brokers need to always consider what type of risks an underwriter is winning and whether the client they are trying to place is consistent with that and fits into that portfolio” 
-Christian Garling, FTA Insurance

A chance for brokers to shine 

Despite the challenging conditions, there is no shortage of optimism among this year’s 5-Star Professional Indemnity winners. 

 

Paul Burton, managing director of Queensland-based PI Direct Insurance Brokers, sees plenty of opportunities in the hard market. “I recently read a comment, with which I agree, that given how long we have been experiencing these market conditions, perhaps it is time we stopped calling it the hard market and just referred to it as the market,” he says. 

 

In these conditions, Burton sees a significant opening for brokers to show the value of their expertise and professionalism. 

 

“Clients who do not understand why they cannot get terms or the significant increase in their premiums depend on a broker’s advice to educate them, manage expectations, guide them through the process and achieve the best result possible,” he says. “Hence, these conditions provide numerous opportunities to create new and cement existing relationships with their clients.” 

 

Christian Garling, managing director of Sydney-based FTA Insurance, agrees, adding that with premiums increasing and terms tightening, many insureds are reviewing their coverage to make sure they have market-competitive terms. 

 

“If a broker is staying in contact with potential clients, then this provides an opportunity for the broker to show what they can achieve,” Garling says. 

 

Brokers can also play an invaluable role by pointing out potential gaps in a policy, he adds. “With many clients using online systems, they can receive inappropriate terms, and this is a great opportunity for a broker to show their expertise by pointing out the deficiencies in cover. Alternatively, [they can advise] on new products and exposures that the client might not have appreciated, [such as] cyber.” 

 

Burton stresses that brokers must fully understand the client’s business and requirements to obtain adequate coverage. 

 

“While it may appear obvious, when it comes to completing the PI proposal, it is essential to make sure all questions are correctly completed and, importantly, that the business description is completed and covers all activities for which cover is being sought,” he says. “It is amazing the difference this makes to underwriters and how often this is not done correctly.” 

 

And don’t stop with a proposal form, Burton advises – include additional information like copies of standard contracts and CVs to make your client stand out. 

 

“Engage with your underwriter, discuss the risk with them, involve them in the process,” he says. “Of course, a very simple way to do this is to engage a specialist to assist you through the process and benefit from their expertise and relationships.” 

 

As for the likelihood of more insurers pulling out of the PI market, Garling believes the situation has stabilised for now – although he notes that there are still some very large players “taking corrective action” on their portfolios. 

 

“Brokers need to always consider what type of risks an underwriter is winning and whether the client they are trying to place is consistent with that and fits into that port-folio,” Garling says. “If you see an under-writer applying little in the way of under-writing filter or targeting risks that are distressed, then you can expect that portfolio to experience significant rate movements or even a withdrawal of capacity. However, if you see an underwriter targeting low-hazard and low-exposure business, this will give a broker and their client confidence that the rates should stay consistent and capacity be available into the future.” 

 

 

5-Star Awards 2021: Professional Indemnity Insurers