Richard Webb is Direc­tor at Man­ches­ter Under­wri­ting Mana­ge­ment (MUM), exclu­sive part­ner of CGPA Europe in the Uni­ted-King­dom. MUM is a spe­cial­ty under­wri­ting agen­cy whose cur­rent pro­ducts include Bro­kers’ Pro­fes­sio­nal Indem­ni­ty Insu­rance, and is a lea­der on this mar­ket. This Pro­fes­sio­nal Indem­ni­ty insu­rance faci­li­ty, insu­red by CGPA Europe and under­writ­ten and mana­ged by Man­ches­ter Under­wri­ting Mana­ge­ment Limi­ted has been accre­di­ted by the Bri­tish Insu­rance Bro­kers’ Asso­cia­tion (BIBA) to pro­vide cover to its members. 

Richard has over 30 years’ insu­rance expe­rience : he star­ted his career with Gene­ral Acci­dent, before spe­cia­li­sing in the Pro­fes­sio­nal Indem­ni­ty Mar­ket. In this article, he high­lights the dan­ger for Insu­rance Bro­kers with the UK PI mar­ket : indeed not only a hard mar­ket is a hard envi­ron­ment to work in, but it could also create higher risks of claims against Insu­rance Brokers. 

The UK pro­fes­sio­nal indem­ni­ty mar­ket has chan­ged over the last 24 months. It began to har­den during 2018 but frus­tra­tin­gly not for all pro­fes­sions. The mar­ket star­ting to har­den was no great sur­prise, espe­cial­ly for those in the indus­try who have been through the insu­rance cycle before. But there are plen­ty of under­wri­ters and bro­kers in the UK pro­fes­sio­nal indem­ni­ty mar­ket that have been wor­king for over 15 years and only known a soft mar­ket. This change of envi­ron­ment has thrown up new situa­tions for many, which are com­pli­ca­ted fur­ther by the mar­ket har­de­ning being pat­chy. This has crea­ted dan­gers for insu­rance bro­kers.

Hard mar­kets are chal­len­ging for all invol­ved. Clients face sub­stan­tial­ly higher pre­miums than they bud­ge­ted for and the cover avai­lable may be res­tric­ted and not meet the demands set out in the contracts they have ente­red into with their clients or requi­red by their pro­fes­sio­nal body or regulator. 

Under­wri­ters with­draw from the mar­ket enti­re­ly or pull back by res­tric­ting their appe­tite, limi­ting their expo­sure by wri­ting smal­ler line sizes, res­tric­ting cover, increa­sing pre­miums and deductibles. 

This leaves the bro­ker in the middle, faced with unhap­py clients and a mar­ket place that is contrac­ting and no lon­ger pro­vi­ding the cover their clients need. In the worst case, bro­kers have been unable to obtain cover and their clients have ended up going out of business.

Added to this is the issue of those bro­kers and under­wri­ters who have only wor­ked in a soft mar­ket envi­ron­ment. In the UK, the soft mar­ket has been around for a long time and many bro­kers and under­wri­ters have spent the for­ma­tive years of their career sel­ling on price with poli­cies that offer wide cover. This is not the best trai­ning ground for when the mar­ket begins to turn. Clients who buy pro­fes­sio­nal indem­ni­ty have become used to bro­kers pro­mi­sing a saving on their rene­wal pre­mium and so they allow for that in their own bud­gets. Under­wri­ters have become used to top line growth and so redu­cing pre­miums, for­get­ting about the rate they need to achieve to be profitable. 

It has led the UK PI mar­ket to where it is now. Construc­tion pro­fes­sio­nals, in par­ti­cu­lar desi­gn and construc­tion risks, have been hit the har­dest with sharp rate increases and cover being limi­ted. ‘Any one claim’ limits have been repla­ced by aggre­ga­ted limits and the total limits of indem­ni­ty avai­lable are lower.

The PI mar­ket has become some­thing of a mine­field for insu­rance bro­kers as a result of these changes. The lower hazard risks, such as those into IT, media and busi­ness consul­tan­cy can be pla­ced fair­ly easi­ly. Accoun­tants and Insu­rance Bro­kers have seen an increase in rates but now­here close to those expe­rien­ced by the construc­tion pro­fes­sio­nals. So, for now, many are yet to expe­rience that issues faced by the construc­tion industry. 

Bro­kers need to adapt to cope with the chan­ging mar­ket. There are cer­tain steps that they can take to reduce fric­tion with their client and the PI mar­ket. These steps are nothing new but skills that may have been lost during the soft market.

Mana­ging clients’ expec­ta­tions is the first step and that involves mana­ging time and com­mu­ni­ca­tion. Steps such as iden­ti­fying the risks that will be pro­ble­ma­tic to place. If high limits of indem­ni­ty are requi­red or if the expi­ring mar­ket is with­dra­wing then access to capa­ci­ty is key. That may require access to the who­le­sale mar­ket in Lon­don. So the rene­wal pro­cess needs to start ear­lier and the retail bro­ker needs to form a good wor­king rela­tion­ship with their who­le­sale bro­ker. Lea­ving it late sim­ply means the cur­rent poli­cy will expire and then it becomes a much har­der posi­tion for the bro­ker and posi­ti­ve­ly dan­ge­rous for the client. 

Being open and rea­lis­tic with a client about the cover avai­lable in the mar­ket is the best pro­tec­tion for a bro­ker. Clients who receive bad news late in the day will never react well. The client may not be keen to hear that their pre­mium is going up or limits are coming down but it is bet­ter to be open with a client about the rea­li­ty rather than pre­tend that the mar­ket hasn’t chan­ged. I have had seve­ral conver­sa­tions recent­ly with bro­kers who found the first rene­wal in the hard mar­ket tough but led their client to believe the next rene­wal would be easier, when, in fact, the terms got har­der and so did the message.

Many clients have ente­red into contracts with terms rela­ting to the insu­rance cover they hold. It may not be pos­sible to pur­chase such cover in the cur­rent UK PI mar­ket. Insu­rance bro­kers and their clients’ soli­ci­tors should have advi­sed the client to have a caveat in the contract dea­ling with the pos­si­bi­li­ty of future una­vai­la­bi­li­ty of cover. 

Final­ly, frus­tra­tions arise and clients, insu­rers and insu­rance bro­kers can all get exci­ted and things can get lost in com­mu­ni­ca­tion. Recor­ding conver­sa­tions on file and confir­ming any ver­bal agree­ments or sta­te­ments in wri­ting can pro­vide key evi­dence should any chal­lenges arrive. The lack of the piece of evi­dence can be the dif­fe­rence bet­ween a claim against an insu­rance bro­ker and a pro­blem sim­ply being resolved.

A hard mar­ket is not just a hard place to trade but it can create a dan­ge­rous envi­ron­ment for a broker.