The professional indemnity market has been fluctuating over the last 5-10 years. Within the last decade there was a vast oversaturation of insurers and as a result, rates plummeted. Since then, it’s not been such a pretty scene.
It seems that insurers had been under-pricing professional indemnity for many years in a bid to retain market share in a competitive environment. A few things then happened…
1) The Lloyds review. Lloyds reviewed the professional indemnity results of its syndicates. The findings were not good. It seemed that syndicates had made a combined loss of almost £0.5bn in professional indemnity.
2) Grenfell Tower disaster in 2017. Everything professional indemnity insurers feared about construction professional indemnity came to horrible and frightening fruition in Grenfell disaster. This incident had large reverberations throughout the construction industry due to the concerns around combustible materials and increased regulations.
With public finances stretched, accounting firms are also impacted as HMRC has scrutinised tax avoidance schemes and, no doubt, other loopholes will be closed.
Then 2020 hit and the British Government’s response to the Coronavirus had phenomenal effects on every single trade – not least the insurance industry. On top of business interruption claims insurers have made significant pay outs in employment dispute insurance, travel, and cancellation which has tightened their margins. This will also have had an impact on the need to increase pricing. Okay. So, what does 2021 offer?
Well, looking at 2020 we know that no one can predict the future.
It’s plain to see that we aren’t out of the woods yet. Lockdowns and business restrictions are still impacting a large percentage of British businesses. Though we definitely appear to be approaching the light at the end of the tunnel, the likelihood is that there will be continual and potentially unforeseen strains on many businesses due to the general climate, cashflow strains and uncertainty that has swept the nation.
From a professional indemnity perspective, the market traditionally goes in cycles. You have a ‘soft’ market where there are many providers competing and prices go down. Then insurers lose money, so you get a ‘hard’ market where insurers start to exit the market, so prices then go up.
No one can tell when capital will come back into the professional indemnity market and prices will go down again. However, it is likely that this will not be within the next 12 months.
So, with these effects on the business economy, and the increasing cost of professional indemnity it is understandable that businesses will be looking to cut costs, and some may consider ditching the extra cost of your professional indemnity insurance. Is this a good idea?
Unfortunately not.
In times of a recession, there is usually an INCREASE in professional indemnity claims.
Why?
For all the above reasons. Capital and cash funds are tighter. People looking for savings and cost cuts may withhold paying invoices for services alleging a failure in a service. Concurrently, many businesses are also adapting to new ways of working which can put strains across a value or delivery chain.
As an SME, ourselves, we know our clients are trying to do the best they can for their clients. We know our clients have good intentions and are professionals within their field.
We also know that each business we insure is run by humans and humans are not infallible. We know change can bring opportunity, but it also brings risk to any business.
Our aim is to shield our clients from as much of that risk as we can.
We provide professional indemnity cover for a multitude of trades, click here to see our 2021 Appetite Guide or give us a call on 03333 448 535 to discuss getting your much needed cover from an expert.
