Professional Indemnity
Insurers target retention levels amid increasing competition
London insurers are looking for growth in 2024, bringing a competitive tension to the market. In H1 2024, we saw 5-10% rate decreases for risks (subject to client risk profile and claims record). We expect this trend to continue in H2 2024. While premium rate increases are reducing, insurers remain focused on retention levels. Insurers will want to increase retentions for growing firms, or for those experiencing frequent and/or severe claims. There is a renewed appetite for construction project-specific PI, mostly for large $1bn+ contract values.
Changes in policy terms and conditions
Since the UK Building Safety Regulation 2023 came into force on the 1 October 2023, any project requiring Building Regulations application, from domestic house extensions to higher-risk buildings (HRBs), will now require two ‘principal duty holders’ to be appointed: the Principal Designer and Principal Contractor. If any insureds are providing this service, they should ensure their PI policy wording includes an appropriate definition of professional services for both roles.
Insurers continue to review Fire Safety and Cladding coverage. Whilst some Insurers have agreed to broaden the scope of cover for restrictive language (post satisfactory review of their exposure to this risk), the majority of insurers remain concerned about not just past exposure but also how the construction industry is adapting to new reforms. This has been heightened by the recent Grenfell enquiry Phase 2 report released in September 2024, which suggests earlier reforms are insufficient and there is a need for more comprehensive regulation of the construction industry.
Underwriting changes
Aviva has acquired Probitas to access their Lloyd’s platform with the intention to write US and International PI business hopefully starting in 2025. Kova are a new MGA market entrant writing UK and European small and medium sized business. Beazley now provide capacity to Ki (in addition to Aspen and Travellers). Ki is a fully digital and algorithmically driven syndicate in Lloyd’s. With the addition of Beazley, Ki can provide up to USD11.25m of additional capacity on US PI placements providing they include a nominated lead Lloyd’s syndicate. SCOR are moving all US domiciled business to their US office from 1 July 2024. They will be non-renewing any integrated programs (i.e. Employers Liability, General Liability and Professional Liability combined).
Most insurers wish to grow their underwriting team, causing a large amount of movement in the market.
Geographic/sector differences
Australia continues to be a very competitive market, with more insurers opening offices there – most recently Probitas, Markel and Everest Re. The US and Canadian domestic market continue to be competitive, both on premium and retention, especially for the small and mid-market firms.
Notable claims
We continue to see frequent and severe claims, particularly on large infrastructure projects.
Claims inflation is a challenge for construction related claims due to the cost of materials, supply chain risk and the long tail nature of professional indemnity.Supply chain risk continues to be a concerning factor in the increase of claims. The challenging economic environment has resulted in more construction insolvencies, especially in the UK and Australia. Most notably the recent insolvency of ISG has left a number of sub-consultants and sub-contractors in a precarious position.
The cost of litigation and litigation funding has increased exponentially. It is not uncommon to see PI claims reach $100m, especially on large infrastructure projects. Insurers are watching closely for what the effects will be from the change to the UK Defective Premises Act 1972 brought in by the Building Safety Act 2022 (extends the limitation period from 15 to 30 years); and if this will open the door to further PI claims. It is important to note that insurers are more resilient to such losses after the remediation they made to their underwriting portfolio post the Decile 10 and PRA review in 2018.
New solutions
Mosaic have launched a customised coverage for Specialist Engineers with USD 15m capacity offering global core PI coverage. W R Berkley and Convex are also showing increased desire to write Owners Protective Professional Indemnity.
Beazley have established a new Lloyd’s consortium; they now have between a USD 15.5m and USD 23.5m line of capacity (depending on profession and location). The consortium has been established to target large insureds’ primary layers only. 100% lines are the intent, making it a one-stop shop for brokers to get a fully supported alternative quote to incumbent terms and offering insureds a one claims agreement, one contract change agreement, one renewal negotiation alternative to subscription market placement (through the panel of insurers supporting the consortium). The targeted classes are lawyers, architects, engineers, contractors only.
In H1 2024, we saw 5-10% rate decreases for risks (subject to client risk profile and claims record). We expect this trend to continue in H2 2024.
Outlook
Expected range in rate changes for the next 6 months for claims-free portfolios
Rates are not expected to change much over the next 6 months, although a more commercial view in the last 6 months of the year will help insurers meet their growth targets.
Expected capacity change in the next 6 months for claims-free portfolios
With the arrival of the new PI underwriting team at Dale and Arc and the general market drive for growth, we are expecting capacity to increase in 2025.
Expected coverage change in the next 6 months for claims-free portfolios
We are not aware of any expected coverage changes in the next 6 months.
AI and other technologies raise several risks and compliance issues which are constantly evolving as they continue to develop and become more widely used. These include cyber risks, reputational considerations, regulatory compliance issues and difficulties with ascertaining where liability should fall.
Emerging risks
Sustainability and climate change are a challenge in the construction industry, due partly to the current pressures on the supply of materials and the labour market. Contractual obligations are increasing with standard form contract wordings containing relevant provisions. This could bring claims relating directly to the provision of professional services. For example, alleged failure to advise an employer on the feasibility of a project due to an extreme weather event. Or allegations of defective design arising from a failure to adapt for and mitigate against climate change and its effects.
AI and other technologies raise several risks and compliance issues which are constantly evolving as they continue to develop and become more widely used. These include cyber risks, reputational considerations, regulatory compliance issues and difficulties with ascertaining where liability should fall. Professional firms also need to ensure employees are trained properly and supervise their staff as the technology evolves. While there are clear benefits in saving time from the use of AI, it will not negate the insureds’ duty to act with reasonable skill and care.
Renewal recommendations
If possible, meetings should take place with insurers in person and well in advance of the renewal date. Work with a broker to effectively demonstrate to insurers your business – specifically, any changes, risk management process, approach to contracts, and internal claims reporting process. If there are any claims or notifications, it is useful to provide insurers with a thorough update and any lessons learned. There is currently a large amount of M&A activity in the professions space; if that is something an insured is involved with or considering, insurers will be interested to know what due diligence is carried out and how they manage past liabilities for any firms being acquired.
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