Our team of experts in the legal professional indemnity (PI) insurance market have been warning since early 2018 on the impending tightening up of this market and what it means for increases in rates and the availability of cover.
We believe firms need to know what they will be facing as they seek to renew their PI cover so that they can start working with their broker to get the best deal and manage their budgetary requirements.
It does not help clients if brokers hide the grim reality of the changing market conditions. We believe the best way to help clients is to be honest about the market and to start the conversations about what to expect as far in advance of renewals as possible. With the market hardening at a rate not seen for over a decade that philosophy applies more than ever.
What has caused the market to turn?
Claims have gone up, leaving many insurers who wrote business at unsustainably low rates see their loss ratios exceed their premium income. The non-US PI market has lost $435 million (approximately £347 million) over five years according to Insurance Day, which has added further pressure on pricing.
The market has been further pressured by the thematic review initiated by Lloyd’s of London (“Lloyd's”), from where a lot of the capacity for this market comes from. Lloyd’s has implemented a clear process to respond to the losses in the market by demanding that its syndicate’s business plans do not include unprofitable areas of exposure.
Lloyds’ review identified that two-thirds of its syndicates were loss making and PI was highlighted as one of the worst performers, which has resulted in a significant reduction in capacity for 2019.
Rising rates, exiting insurers
This has two consequences, warns Charles Hawtin, Client Services at Six Clerks: “Rates are going up. Insurers are looking for an average rate increase of between 15-20%, even on accounts they have underwritten for years. Insurers are also pulling out of the market, which means the choice is now much more restricted.”
Most excess layer policies are underwritten by Lloyd’s syndicates and we have seen rates increase substantially particularly on the £7,000,000 in excess of £3,000,000 layer. We are seeing excess layer rates double this year due to the pressure Lloyd's are putting on syndicates to write at profitable rates.
During the 2019 April renewals, two of the MGAs backed by Lloyd’s capacity struggled to quote because they lost their capacity. We now know that both these MGA’s have had to pull out solicitors PI all together. Several other insurers have also pulled out in recent years, including Aspen, Brit, Channel, Hamilton, Libra and Pioneer. They will not be the last. If your firm is insured via an MGA and you are not sure if this affects your firm, please contact us and we can provide further information.
With reduced capacity and choice, insurers are having to adapt and be creative in order to manage capacity. The most common method we are witnessing in the market is co–insurance, where an insurance company or syndicate subscribe to a percentage of the agreed limit of indemnity. This means another insurance carrier(s) must sign up to the remaining percentage to get to a limit of indemnity that is 100% supported. This is common for firms undertaking work where the losses can be quite severe, for example, commercial/corporate work or conveyancing work.
Firms with poor claims records now face a serious challenge to ensure they have cover in place. These will be the firms that will come under the toughest scrutiny from insurers as they are being much more selective about which firms they choose to fill their limited capacity. This demonstrates the importance of engaging with an experienced broker who will help your firm put a renewal submission together in a way that helps your firm stand out.
“It is important that we help you to present your firm in the best possible light.” says Charles Hawtin, Client Services at Six Clerks. “This includes a detailed analysis of claims and an explanation of your firm’s approach to risk and compliance.”