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Professional Indemnity Insurance (PII) What is the way forward?

The professional indemnity insurance season for 2013/14 was been one of the most difficult renewals for many a year for everyone, solicitor, insurers and brokers (even!).  Over 100 firms had to close as they could not find cover or could not afford the premium.

So what has caused this?  Stepping back and looking at all things it is apparent that we have had a perfect storm.  We are 5 years into a recession and finally emerging through the other side (fingers crossed).  With signs that some areas are pulling through (the UK!), for insurers and legal firms money is still tight and claims are rising.

A little bit of background may help understanding.  In insurance economics if premium monies are not needed now, insurers aim for a balanced portfolio of long term investments, monies on deposit and premium income.  Surplus premium income has therefore been put aside in good times to maintain premium levels in bad times.  This can only work for so long.

At the moment investment returns are low and interest rates are virtually non-existent.  Insurers are ever more relying on recent premium income alone to fund claims and costs.  At the same time clients are increasingly cost conscious and looking for the best price from the participating insurers.

At the moment there is excess capacity in the insurance world and in recent years a number of insurers have looked at the solicitor’s professional indemnity market and decided to have a go.  The simplest way to gain market share was to cut prices, with concomitant downward pressure on premiums (always welcome) but also causing the larger and more mature insurers to look at their business models and consequently some are reducing their exposure.

More insurers in the market forcing down premiums looked to be a good for firms but has turned into a perfect storm.  Some of the newbies have withdrawn from the market for various reasons, other insurers are seeking to reduce their exposure so creating a sellers’ market.

So what can we do?  It is an old saying but relationships do count, brokers know both their clients and the insurers, we like to build information on both and use it to everybody’s advantage.  With the relaxing of renewal dates we can start the process earlier and proceed at a more organised  pace.  This will allow a more measured approach to an application.  Brokers will have time to consult their clients and help with the presentation of an application.  Working together we will not have to condense a years’ worth of work into a few months as has happened in recent years.