Professional Indemnity Insurance; a hardened market

Professional indemnity insurance (PII) has been in a hardened market for the last couple of years now, with some industries being impacted worse than others. The impact of COVID-19 has created a precarious environment for obtaining any insurance quotations – particularly for PII.

Below we set out some top tips for navigating through a PII renewal in these current times - but firstly, it is good to understand exactly what is causing the market contractions. In basic terms, a “hard market” is where there is less insurer appetite, or capacity to provide quotations, which in turn causes increase in premiums and reduction in the cover provided. Some professions have seen premiums more than double and more exclusions added to their policy cover.

The accountancy profession has not been quite as broad brush as this, with certain areas of practice more under the microscope, such as M&A, tax introduction schemes and large corporate firms. Smaller practices and sole traders appear to have been hit the least with premium hikes, whilst there have been some increases seen in the mid-tier and larger entities.

One of the major impacts of a hard market is that insurers will be making board level decisions to pull out of certain market spaces. PII has not been exempt from that, with a number of insurers now refusing to provide quotations at all, regardless of types of work involved in or size of practice.

COVID-19 has impacted the speed at which the market reacts, with some insurers prioritising renewals rather than new customers. Having a proactive broker is essential but do expect turnaround times to be slower until we become more settled into the ‘new normal’. There are some insurers who are applying COVID-19 exclusions on the policies which protect them against claims that are made as a result of the virus. These exclusions are open to interpretation and should be considered very carefully with your broker before accepting.

 

Start the process early

The first stage of the process is to start your renewal nice and early. Whilst this may seem obvious, everybody has different beliefs for an early start, so a basic guideline that Brunel Professions are suggesting is as follows:

• Firms with a partner size of 1 – 3 or turnover less that £1,000,000 should be looking to receive proposal forms from their broker 4-6 weeks before renewal, with the aim of submitting completed renewal forms 3 weeks beforehand.
  
  
• 4 – 10 partner firms, or those with a turnover up to £5,0000,000 should be looking for contact with their brokers around 8 weeks before renewal with submission of forms 4-6 weeks prior to the renewal date. It is unlikely shorter forms or auto-renewal will be available, so give yourselves time to complete the forms.
  
  
• 11 + partner firms and those with turnovers above £5,000,000 should be looking to contact their broker no later than 12 weeks from renewal and submit forms around 8 weeks before. All points as with the above firms are relevant, guidance from your broker will also be key. A useful addition for your presentation will be a covering letter, on company headed paper, giving an outline of the company’s history, structure, overseeing of offices/staff, and future growth strategies. These covering letters help to paint a more encompassing picture of the practice away from the stats/figures of a standard proposal form.

 

Selection of broker/brokers

Your first question to your broker should be to ask if you existing insurer will be offering renewal terms this year, or whether they have pulled out of the marketplace. If they are offering renewal terms, then find out when these can be expected by and whether an increase is anticipated.

Should it be the latter then you need to discuss with your broker how many of the ICAEW, or equivalent governing body, approved insurers they have access to (bearing in mind some insurers may have left the market or may no longer meet the minimum approved policy wording – ICAEW’s minimum approved policy wording changed from 1 September 2021, for example) and what their strategy will be for renewal. At this stage, it may be worth considering involving other brokers.

Given that it is a crowded marketplace, too many cooks can certainly spoil the broth. 2 or 3 brokers should be the maximum and ensure also that they are specialists in providing professional indemnity insurance which is of course niche in itself.

 

Getting your market presentation correct

In point 1 there are some guidance points as to some extras to include, but there are other areas in which a bit of attention could go a long way.

• If you have any ongoing claims, or have made notifications to insurers, you need to work with your broker on ensuring that all the most up to date information and figures are being reported to the insurers. If you believe a notification has not progressed and no claim will be made, but insurers still hold a reserve, this could have a significant impact on the premium level or whether you even get a quote. Ask your broker for an updated insurer claim summary and meticulously go through the figures on the summary with the broker to ensure it is accurate as of today.
  
  
• Should you carry out any work that is deemed high-risk, please go into as much detail as possible as to the nature of your clients, future workflow and expertise. Including CVs of staff involved where appropriate will help to highlight experience in the area.
  
  
• Overseas work, particularly that in North America, needs to be well documented. Include within this whether the work comes under the laws of England and Wales, or Scotland, or whether in fact the jurisdiction lies with geographical location of the client/project.
  
  
• Any other relevant risk management or procedural points that will show the firm in a good light.

 

Selection of insurer option

Finally, if you are fortunate enough to have more than one option available, it is worth taking time over your selection and understanding all of the options available. Your broker should have gone through your demands and needs but here are a few things to look out for:

• Has your policy wording changed from last year? Are there any new endorsements or exclusions? As already mentioned, some insurers are adding COVID-19 exclusions amongst others to new quotations. Your broker should highlight all the changes to your cover and provide alternatives that maybe are not be so onerous.
  
  
• Limit of indemnity and excess changes. These can have significant impacts on the premium. You may have carried a £20,000,000 limit of indemnity previously but actually could operate with a £10,000,000 limit moving forward. Dropping down could save thousands on renewal terms. Excess levels may change, these need to be reviewed.
  
  
• New insurers. If you are changing insurer do some basic due diligence. Are they on the governing body approved list? How long have they been in the market? What’s their claims reputation?
  
  
• Be careful not to be completely price driven. Look for the overall package of insurer quality, policy coverage and price.

 

How can we help?

Mercia have recently engaged with Brunel Professions in a partnership to provide firms with an exclusive professional indemnity insurance offering. Should you wish to engage in a conversation with Brunel Professions on your renewal or any of the above, then they can be contacted on 0117 325 2224 or mercia@brunelpi.co.uk.