The cyclical nature of the professional indemnity (PI) insurance sector is akin to watching freeze-thaw weathering in action – as rapidly evolving hard and soft market conditions create an uneven but uniquely identifiable landscape.
A long-standing PI specialist who has served the market in senior positions at several leading firms Paula McManus (pictured) has seen it through rough and smooth seas alike. Now a year into her role as head of professional indemnity for Spring Insure, where her focus is on non-standard/miscellaneous risks and so is largely protected from the worst excesses of the PI market, she is enjoying the opportunity to set the direction of travel for the MGA’s PI offering.
“Heading up the new commercial PI account is exciting because it’s brand new,” she said. “Having had so many years underwriting PI, I’ve underwritten an eclectic mix of occupations. It’s nice to be in a position to identify the areas where I want us to progress further because I see them as profitable, and where I know that we can make a real difference.
“That’s as opposed to writing a book that already has mass market capabilities and so you can’t really add much to it apart from pricing. Those categories of the market – for accountants, surveyors and solicitors – all have a wording that’s written by the association so the only way you can make a difference is price, or service. But I’ve seen solicitors move for a pound, so there’s only so much you can do with that scope of occupation.”
While Spring is focused on the non-standard corners of the PI market, McManus has a clear view of the concerns facing the commercial PI market and she highlighted the tumultuous conditions it has faced in recent years. During COVID, the market hardened unbelievably quickly, she said, with brokers in the construction sector, in particular, facing a lot of pain as they navigated rate increases of up to 300% while many providers pulled down the shutters on cladding.
“I joined Spring in October, and across the market, I suddenly started seeing a trickle of fire safety cover coming in and rates decreasing,” she said. “I think it’s right that there should be availability for the construction industry to purchase that cover but I do think everyone’s got to be very careful because it’s gone from having no availability to it now being quite common.
“Grenfell and the cladding issues it exposed wasn’t that long ago and I don’t think the claims figures or the full fallout of problems from cladding have filtered through to the triangles as yet. I don’t think we’re out of the woods and so, I think offering such cover needs to be a careful consideration. Professional indemnity is long tail in nature, and it often takes six or seven years before you start to see the claims come through.”
In professional indemnity, claims can be put through and then re-opened later when the limitation period is up with seven-figure sums at stake, she said, so the market needs to be very careful about reducing rates and offering wider cover. Looking across the market, she noted that some players in the space are offering very cheap coverage, which is at odds with Spring’s proposition which places the emphasis on product, service and creating long-term and meaningful client relationships.
“The problem with professional indemnity is that there is a lot of capacity out there,” she said. “There are lots of players, particularly among MGAs, and there are some that are very new who have come in and ruffled a few feathers. But the question has to be asked – will they still be here in three-to-five years’ time? I suspect the answer is that some of them won’t.
“It’s an interesting market at the moment, there is a definite softening. But I think with the uncertainty of the economy at the moment and with inflation, it’s a difficult one to read especially as inflation costs begin to filter through the triangles in respect of claims costs.”
For underwriters, McManus said, the key is to underwrite responsibly and carefully, and to keep a close eye on data to identify key trends coming through. For brokers, it’s important to have a good long-term memory when it comes to identifying those players across the market who will be best placed to support you when market conditions inevitably change again.
There’s a lot of complexity to navigating the PI market as an MGA, she said, as you’re always balancing supporting the needs of insureds, brokers and your insurance partners all at once. Critical to success, however, is being able to have the right conversations with brokers to explain that value is not just about price, but about coverage, longevity and service. At the same time, she understands that brokers have to balance their clients’ expectations and how tempting it is when new entrants come along and appear to offer coverage for half the price.
“I think that the brokers have been through quite a lot recently,” she said. “They went through an exceptionally hard market during COVID and there was a lot of retraining going on to help brokers understand how to broke in a hard market. Now it's all turned around again and there are new training sessions, trying to train brokers on how to deal with the soft market. So it's difficult on both sides of the fence.”
Spring is in quite a comfortable position, she said, as the non-standard/miscellenous parts of the market tends are less exposed from an economic standpoint than the mass market. Pricing tends to be quite stable and sheltered from the shock rate increases seen by the likes of the design and construct business a few years ago and, when rates do go up, it tends to be in mid-single digit percentages.
Looking to the year ahead, she noted that Spring is in a very strong position for growth, having sourced new Lloyd’s-backed capacity. Now supported by five Lloyd’s Syndicates, she said, the MGA has big plans to expand both its headcount and its PI account. Integral to this growth is keeping an eye open for new product opportunities by assessing changes in legislation – environmental and otherwise – which might present new opportunities.
Alongside this focus, the MGA is always looking to expand its capacity, she said, having started with one binder and now eyeing up its third. Expansion and development are the name of the game, and expanding the team is a key part of this, as Spring looks to bring on new underwriters to take its PI account to the next level. In addition, attention has turned to offering a multi-package product which will be a key area for differentiation going forward.
“It's all about growth for us, but in the right direction and into the sectors where we can offer a difference, where we can offer a better product and better service and better claims experience,” she said. “We don’t want to be just another MGA that can offer a cheap price or just another provider that can offer the same coverage but for £10 less. That's not what we're about.”