Briefing: Brokers fear professional indemnity market crunch will only worsen

By Jon Guy

This month, the insurance industry has sought to tackle the thorny issue of fire safety risks on high-rise residential buildings with the publication of a new model insurance clause on 1 September 2022.

The clause can be used by any underwriter looking to offer professional indemnity (PI) insurance for the risks involved in the government backed programme to remove cladding from high-rise buildings following the Grenfell Tower disaster in 2017.

Chris Jones, the International Underwriting Association’s director of legal and market services, said: “The market for construction professional indemnity insurance has been difficult in recent years, reflecting concerns about the potential for historic liabilities to develop into future claims following the Grenfell Tower tragedy.

“Each new risk must continue to be assessed on a risk by risk basis, of course, but the clause should provide underwriters with greater confidence to offer effective insurance solutions for future work.”

However, many brokers have found that the ability to underwrite these risks is a far cry from insurers actually being willing to assume the risks.

Even before the announcement of the new clause last week, there have been several brokers that have complained that the capacity squeeze in PI classes has become even more acute.

Indeed, they cite cases where the renewal of PI cover - particularly in the construction market - has become near impossible.

Prices have risen by significant amounts in the past two years. However, rising claims inflation and fears of a recession have tested already reluctant underwriters’ willingness to write new business.

While brokers have seen an exit of PI capacity in recent years, the current approach by underwriters that are still willing to assume PI risks is to simply price any risks which do not fit their criteria at a level which is clearly unaffordable.

While some insurers have sought to maintain their long-term relationships with brokers, intermediaries are finding that the opportunist capacity that entered the sector when prices hardened is receiving a level of claims which has severely tempered their view of the PI market.

Brokers and their clients are fearful that they have been left in limbo - unable to find affordable cover until such time as the cycle starts to soften and new capacity enters the market once again.

The problem is that the liability classes are not viewed as the place in which to make money - unless you have a huge amount of expertise.

Brokers fear the PI insurance market will continue to worsen before any green shoots of improvement will be seen.