Insurance Brokers face a challenging time in the PII market

Lloyd's Building at dusk

Professional Indemnity Insurance (PII) has benefited from soft market conditions for as long as many of us can remember. However, for a variety of reasons the last two years has seen a withdrawal of capacity, which is making even the simplest renewal process a significant challenge.

Insurance brokers had remained largely unaffected until very recently. A continued reduction in capacity, combined with the Coronavirus outbreak and the potential implications for brokers, has shone an unwelcome spotlight on the sector. It now appears that brokers will face similar conditions to those encountered by other professions over the past 24 months, with several key players in the broker PII arena having already withdrawn in 2020. Add to this a very limited appetite for new business from the remaining insurers in the market and what was previously a simple PII renewal process is likely to now come with significant difficulties in respect of premium and coverage.

Why has the PII market hardened so significantly?

The change in the PII market conditions initially stemmed from a review undertaken in mid-2018 by Lloyd’s of London across all insurance classes. The outcome was that PII (Non US) was the second worst performing class of insurance over the past five years incurring a cumulative underwriting loss of over £435 million. As a result of these findings, insurers have been increasing their premium rates to balance their books or in worst cases, withdrawing from the PII market altogether.

In addition to the review from Lloyd’s of London, insurers have incurred significant losses in the construction industry following the tragedy of Grenfell Tower which has also had an impact on premium rates applied by insurers across all professions. The market is now in a position whereby there is a capacity deficit – a situation the PII market has not experienced in over 10 years.

Additionally many of the carriers who underwrite insurance brokers also tended to provide capacity to the IFA market. The instability in that area caused by increases to the FOS limit and issues around pension transfers has resulted in those insurers having to take corrective action across their whole portfolio, which in turn has further impacted the PII market in respect of insurance brokers.

What are some of the concerns for brokers following the Covid-19 pandemic?

Since the beginning of the pandemic, brokers will have seen a flurry of enquiries from concerned clients looking to ascertain what coverage is available to them under their insurance policy for the hardships they are suffering. These are highly emotive times and brokers must ensure that, whilst being hugely sympathetic to their client needs, they follow their usual protocol in assisting clients with notifications and do not feel pressured into providing answers and assistance that may prejudice their own positon further down the line.

Given the well-publicised and generally adverse response that certain notifications have received, especially for business interruption claims, the broker may be faced with a situation that could give rise to a PII claim. Although there are many good arguments in favour of brokers, the high profile nature of the matter undoubtedly has the potential to cause insurers costs in defending brokers who are drawn into these proceedings. Insurers’ fears are not only for policies already placed, but also in respect of the ongoing placement challenges faced by brokers with a raft of Covid-19 exclusions now appearing in the market. Insurers also have concerns over the ability of brokers to continue to service their clients in the current lockdown - with a view that those firms with less robust business continuity plans could face negligence claims in the coming months. 

How has the Covid-19 outbreak impacted the insurance broker PII market?

Although the number of insurers underwriting insurance broker PII policies was relatively small, it was always a competitive market. In the main, it provided enough alternatives to ensure that reasonable coverage and premiums were achieved. For the reasons stated above, the market had shown signs of constricting in early 2020 and the arrival of the Covid-19 pandemic shortly after caused this to exacerbate even further.

Fear around increased broker claims resulting from the pandemic appear to have forced any wavering insurers out of the market, with significant departures seen in the last few weeks. For those left writing PII for insurance brokers, many have closed their doors to new business completely. When dealing with renewal cases, they are asking probing questions around business continuity plans in respect of Covid-19. Dependent upon the responses, insurers may look to apply a full or partial Covid-19 exclusion. These exclusions vary and some are particularly wide so it is vital to understand the potential impact on your business before renewing.

The restriction of market capacity and potential for an increase in claim notifications has also had an impact on premiums, with many brokers likely to experience significant increases at renewal.

Key Points for Managing your Upcoming Renewal

Before seeking your PII renewal, you should be aware of the following:

  • Renewals are taking longer – early engagement with your broker is crucial
  • Duty of fair presentation applies – it is more challenging during lockdown
  • Insurers may look to add Covid-19 exclusions or other exclusions
  • Consider notification of circumstances which may, or are likely to, give rise to claims – this is crucial if Covid-19 claims are to be excluded going forward

Bobby Payne Dip CII
Associate Director, Howden Professions

[email protected]