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The Hardening PI Market

Life is getting tougher for brokers in PI and Construction as premiums shoot up, says James Sharp for Insurance Age - October 2019.

On seeking editorial guidance regarding the current topics of broker interest about which I could comment, I discovered there were two. On the one hand, what one might refer to as Sexism in the City and, on the other, the loss of appetite or capacity in certain parts of EC3.

I landed the latter one, which is probably just as well.

It was the late 90s when the market was last this challenging. As I recall it, conditions had somewhat improved circa 2000 – and then there was 9/11. Everybody thought this event would reintroduce and compound the recent difficulties, but it didn’t.

Nevertheless – and I may be corrected on this – I remember the hardening in 1997/98 as based across many more classes of business than the current manifestation. Now, things are focused primarily within professional indemnity (PI) and construction, with some unrelated pricing adjustments in other areas, which, for some brokers, may be adding to their impression of a generalised phenomenon.

So, what is happening?

Well, according to my sources, a little over a year ago, Lloyd’s called in all syndicates involved with PI and construction and told them to either stop writing these loss-making areas of business or to get better at doing it.

Everybody was given until 1 January 2019 to either pull-out or to agree a new business plan with Lloyd’s, involving somewhat higher premiums. As a result, a few have indeed ‘pulled up their stumps’ and left the field, whilst others have revised their pricing strategy.

This does not mean that all PI renewals are subject to the same massive increases, although solicitors, surveyors and some IFAs have been badly hit. A broker I spoke to recently, with a surveyor client of the fire and safety variety, has seen their PI premium increase from £7,200 to £52,000.

Undoubtedly, many brokers and underwriters could cite similar examples. Solicitors’ PI has been ‘in the Baltic’ for years for all but the fortunate few. Standard IFAs are none too bothered, but those who have dabbled in occupational pension transfers are finding their policy renewals pitched somewhere between challenging and impossible.

And then there is design and construction. It is undoubtedly the case that Grenfell casts a shadow of responsibility in this sector of the market.

In the latent defect segment, insurers Canopius and AmTrust at Lloyd’s are not only merging with one another but ceasing to write latent defect insurance entirely. That said, I gather placing difficulties are not anticipated with the simple risk – such as an estate of executive homes in Bucks – but from projects significantly more complex. For these risks, a reduction in capacity down to one or two insurers is something specialist brokers are contemplating.

Whichever way you look at it, these adjustments are the result of claims experience, or in anticipation of claims to come. For this reason, motor fleet is seeing its own little blip in several postcode areas, particularly London. Mid to high net worth household has waived farewell to a couple of insurers and contractors lost their inexpensive option of Gable not so long ago.

Of course, simply because these relatively selective corrections can be evidentially explained does not make life any easier for the broker, who must approach every remaining PI insurer with every case. This reaction then overloads the underwriters and delays them offering terms and, subsequently, adds further to the sense of unease on the part of the broker.

A vicious circle which, if you are under 40, you have not seen before.

But be calm, young people. What every broker wants is always a plethora of willing and gullible insurers. Alas, rather like rural bus services, the occurrence of these has become rather less frequent of late. Just be prepared to wait, another one will be along eventually.

James Sharp is former director of Ten Insurance

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