Necessity may well be the mother of invention but it still takes somebody to spot the necessity in order to make the invention happen. It was spying such a gap in the market that led to the development of Purbeck Personal Guarantee Insurance noted the MGA’s MD Todd Davison when the team developed the idea for a personal guarantee insurance product back in 2016.
“We wanted to see if there was an insurance solution available to support the directors of limited companies and partners of LLPs,” he said. “[We looked at] when they were going to obtain some form of business finance, where there was a requirement from that lender for personal guarantees – and whether there was an insurance solution that could help the directors and give them comfort when taking out that finance. That was really the genesis of the product that we then launched in June 2017.”
It’s now coming up to the fifth anniversary of that product, Davison said, and it has been an interesting journey to date that has seen Purbeck support some £150 million in personal guarantee commitments from various directors and partners. The MGA’s book reflects a cross-section of the SME market, from both a geographic and concentration perspective.
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“As an MGA,” he said, “what we’re always looking for is other product opportunities or potential market problems that we can offer a solution for, which brought us to the solicitors’ product that [we recently launched]. Back in 2020, we started to get approached by directors of law firms and the insurance market community, as well as a number of brokers that had seen our personal guarantee insurance solution and wondered if it could be replicated for solicitors.”
The main driver for that demand has been market moves led by the Solicitors Regulatory Authority (SRA), the regulator that sets the Minimum Terms and Conditions of professional indemnity insurance (MTC) – i.e. the minimum standards any insurer offering PII to solicitor firms has to adhere to. One of the big areas of debate recently has been the question of what happens to legacy customers if a firm becomes insolvent.
“What the MTC has imposed is that if a law firm becomes insolvent, the incumbent PI insurer has to provide six years of run-off cover,” Davison said. “And that’s whether or not the premium is paid. What we saw in 2020 was a move from certain insurers for that run-off premium to be funded via personal guarantees.
“For example, if you’ve got a £100,000 professional indemnity premium, typically 300% is the run-off premium. So directors themselves would have to, jointly or separately, come up with £300,000 to pay off that run-off premium so the insurer can settle any PI claims that would arise during that six-year period.”
Purbeck launched its new Professional Risks Personal Guarantee Insurance (PGI) product ahead of the October 01, 2021 renewal season, working closely with participating insurers and insurance brokers to develop a solution capable of supporting clients. Now Davison and his team are urging brokers to include this policy in their armoury as they face another challenging renewal season.
Since its unveiling, he said, the product has received a warm welcome from the insurance community. Brokers, in particular, are finding that both the product and the thought leadership Purbeck is creating around this niche area of coverage are aiding conversations with clients and prospective clients. The MTC move is relatively recent and so solicitors firms have not yet become used to providing personal guarantees for run-off premiums – and so it has fallen to brokers to provide timely and accurate guidance on this complex subject.
Since COVID-19, the need for a more proactive approach to risk management and conversations around coverage has been felt across the market. Davison noted that really good brokers tend to ensure they have a full repository of products available to them so they can spot any opportunities to provide support to their clients – and to ensure they are fully informed about the latest innovations and updates occurring across the market.
“That’s for us as well, to work with brokers to inform them, to train them, to make sure they’ve got the right literature and the right thought leadership,” he said. “Only then can they be fully informed of the products and how they can help their customers.”
The main challenge facing Purbeck right now, Davison said, is that as the sole provider of this cover, it has a lot to do in terms of getting the market up to speed with what’s on offer, how the coverage works, how the premiums are calculated, etc. With the April 01 renewal season now passed, the focus is on continuing to work with brokers on that education piece to ensure they are informed, aware, and comfortable with discussing this with their clients.
“The near term focus for us with this product is continuing to have an ear on the ground and working with brokers,” he said. “But also, it’s about continuing to respond to market demand. We’ve seen the hardening market, a report from Lockton late last year suggested premiums have increased about 27% year on year and that’s even for firms that haven’t submitted claims. So, there are other headwinds in that market.
“Another area we’ll need to do is to keep talking to brokers and clients, and looking at the feedback we’ve had on the products. That’s around how the premiums rates are fitting relative to the risk profile, how the coverage is working, the limits of indemnity, etc. And it’s also working with our insurers to look at how we might be able to flex things again, to make it even more compelling when we come to the October 01, 2022, renewals.”
