My apologies in advance to anyone who, until now, has been blissfully unaware or not concerned about any insurance issues in their business world. However, I suspect there are not too many of you in that camp. Still, I hope the following doesn’t depress you too much and that the information provided may even give you hope that the insurance world, as we know it, is not coming to an inglorious end.
Before entering into any discussion on the current state of affairs, it is worth remembering that many classes of insurance, and Professional Indemnity (PI) Insurance in particular, have enjoyed what we call a ‘soft market’ for many years, meaning that rates (base premium divided by the practice’s last 12 months’ fees) have been more or less falling since approximately 2004. As brokers who specialise in the placement of insurance for construction professionals, Planned Cover has been somewhat concerned for the past three or four years with the ongoing ‘rate reduction war’ that numerous insurers were engaging in to win market share, particularly for long-tail insurance products like Professional Indemnity and Directors and Officers insurance, and the severity of the correction that was bound to occur at some point in the future.
Many assume that the Grenfell Tower disaster was the catalyst for the change in the sentiment of Professional Indemnity insurers, but in truth, the market had already started to turn in early 2017. Many APRA authorised insurers (i.e. not Lloyd’s syndicates) had already been reviewing their loss-making portfolios and were attempting to remediate their positions. However, in late 2018 and throughout 2019, the Lloyd’s Corporation began taking a much tougher stance on loss-making classes of business and the syndicates that were writing them, which then in turn resulted in many of the syndicates being forced to increase rates, withdraw capacity or cease writing loss-making classes of business altogether. This process of remediation by many insurers over several classes of business is effectively the correction that many of us had been anticipating for some time.
How will the PI market evolve in the near future?
If, as expected, the Lloyd’s-based syndicates continue to contract or withdraw from the Australian PI market, supply will diminish further and the remaining insurers will continue their recent efforts to bring their respective portfolios back to a more profitable position. This will, most likely, lead to increased rates and a contraction in the cover offered. There is a feeling, however, that the low-risk professions may still remain attractive PI risks and that we might see a ‘two-speed’ market developing – that is, where some types of PI risks will remain competitively priced, whilst others will find the ‘hardening’ of the market in the next year or two even more severe than already experienced.
An important change that you and your practice need to be aware of in this new PI world is that as PI Insurers seek to reduce the cover they offer, you and your broker need to be paying much more attention to policy changes than you would have in the past. You will need to consider what these changes will mean to you and your practice going forward, particularly the effect of newly imposed exclusions, or withdrawals of previously provided benefits.
What should you do next?
There is absolutely nothing you or your practice can do to change the way the PI market will evolve over the next few years; however, there are important steps that you can take to ensure you remain an attractive ‘risk’ to potential insurers.
I have already intimated that we may see the development in coming years of a ‘two-speed’ market when it comes to PI risks. As a broker, we believe our efforts over the years in assisting our clients to adopt and engage in good risk management practices has been a critical factor in the way our exclusive PI Facility has withstood this latest PI crisis to date. It is incumbent on you to take necessary steps to enable your practice to be in a position at renewal time where you can show your current insurer, or potential new insurer, the risk management practices your business engages in and the measures you employ to ensure you and your staff adhere to them.
As most of you are already aware, we at Planned Cover and informed Professionals have a wealth of information, advice and guidelines to offer in this Risk Management arena, all available at no additional cost to our client base. Clients and their staff should utilise these as much as possible.
More than just making yourself an appealing PI risk to insurers, active Risk Management will decrease your practice’s chances of being drawn into a stressful, time consuming claim/litigation process and ultimately assist in preserving and enhancing your future insurability prospects.
National Business Manager/State Manager SA & TAS