How do you cope with a hard professional indemnity market?

One of the first pieces of advice that I was given when I started in insurance in 1986 is that it is a ‘people business’. This was a great piece of advice that has often helped many a situation.

You should look to build relationships. In my case, I still have the strongest relationships with those brokers with whom I dealt in the early stages of my or their careers. But the soft market has had an impact on the relationships that exist between several brokers and underwriters. 

The professional indemnity (PI) market has changed as a result of the steps taken by Lloyd’s last year. We saw several Lloyd’s Syndicates withdraw from the UK PI market in the last quarter of 2018. This was coupled with a number of MGAs which had Lloyd’s paper either coming out of the market or scaling back heavily.

The last few months of 2018 saw PI rates move, especially for those professions and risks involved in the construction industry and in particular building and engineering contractors. Those markets left writing the class reacted in ways from reducing their line size to pushing up rates where possible.

But, since the beginning of 2019, the approach by PI underwriters has varied with a general push to increase rates, although not for all professions.

This change of market conditions has brought the predictions about the lack of experience in both underwriting and broking to fruition. You may have been working in the industry for more than 10 years but how many underwriters have had to increase rates in that time? How many brokers have had to explain to a client that they are still a good risk that is claims free but their premium is going up? It doesn’t make these people poor underwriters or brokers, it is simply that the last hard market finished in 2004, which is a long time ago.

The uncertainty created by the changing market makes life a challenge for both underwriter and broker, but therein lies the opportunity. The relationship between some brokers and underwriters is not always healthy during a soft market. Brokers who look to sell on price couple with underwriters who like to say ‘yes’. But this kind of relationship cannot survive in the long term.

When the market moves to where it is now, brokers need certainty for their clients; not just pricing certainty but even whether the market will be there next year. How well do brokers really know the underwriter? What is their experience of market conditions like this and can they help with clients?

Many brokers and underwriters will be on a learning curve that is only experienced in a hard market. Can an underwriter articulate why the market has hardened or are they just regurgitating what they have been told? Can they explain why the rate for a ‘good risk client’ needs to increase?

A broker’s relationship with their underwriter is key more than ever in a market such as this. A healthy business relationship can help both the underwriter and broker. Shopping around for the cheapest price is clearly becoming an unviable approach for PI risks. If ever there were a time to focus on building a healthy and sustainable relationship between broker and underwriter it is now. 

It is too easy to avoid speaking and meeting our counterparts in the insurance world as we correspond quickly through email but, right now as the PI market changes, it will benefit both underwriter and broker to work on their relationships. After all, this is still a people business.