PI premiums continued to rise in 2022, but have we now reached the peak of the market? Our expert panel discussed what factors are at play, looking ahead through 2023 and beyond.
In the last few years, the historically cyclical insurance market in the UK began to harden after a long period of aggressive competition and low premiums. Following the shock of the Grenfell tragedy and the massive disruption caused by the Covid-19 pandemic, tough conditions have spread beyond construction insurance and across the whole market.
Professional indemnity (PI) insurance has been no exception, with high premiums and limited capacity leading to challenging conditions. At The Angle, Markel’s thought leadership event focusing on the realities of the PI market, the expert panel discussed their predictions for the coming year, and how to navigate the next phase in the market cycle.
First to go
PI insurance is less tangible than other areas of cover and poorly understood. “It’s easy to visualise your house burning down, but the idea of being sued for negligent advice or services is much more difficult”, explained Richard Brooks, Strategic Partner and Affinities Director at Markel. “As a result, over the last few years, people have found it quite difficult to understand why the availability of cover hasn’t been the same, and why prices have been rising”.
Faced with myriad other pressures, including staffing challenges and inflation, and perhaps conscious of a loss of trust in the insurance industry since the pandemic, some businesses have come to see PI cover as a cost that could be reduced. “There’s a danger there, because it’s important cover.”
However, history tells us that hard markets don’t last forever, and signs of softening are already emerging. As competition returns to the market, falling premium prices follow. Some sectors may continue to struggle, however, noted Ross Dingwall, Managing Partner for Scotland and Northern England at Partners&. “Construction is an obvious one”, he noted, given its vulnerability to rising raw materials and staffing costs. In general, though, he expects “a bit more consistency in the next 12 months.”
Brooks agreed that things were likely to plateau over the next year, as well as pointing out the insurance industry’s shared responsibility to “drive that consistency through”. Consistency on pricing is “in the interest of the customer, to have that certainty, but also from a broking perspective, to have that consistency of margin”.
Back to basics
Another issue in the insurance market in recent years is customer service, which the panellists agreed has been lacking, particularly since the pandemic. Numerous factors, including but not limited to the move to home working, have made it more difficult to get through to an insurer over the phone.
One way that insurers are looking to improve customer service is through technology. By using artificial intelligence, for example, insurers are able to give quick answers to certain questions when it comes to new business, avoiding what Richard described as “slow maybes”. Along similar lines, improving their “self-serve” offering means insurers can ensure their clients are able to access the information they need without the need for additional resources.
A big question mark over both the PI insurance market and the wider economy is that of inflation, which soared above 10% earlier this year.
For Katie Scott, editor of the Insurance Times, high inflation means higher premiums are “inevitable across all lines of business”, but whether inflation will remain high is difficult to predict. According to the Office for Budget Responsibility, inflation in the UK is forecast to fall below 3% by the end of the year, but numerous factors are at play.
Optimism is growing among brokers that “things will look better over the next year compared to the year we’ve had”, Katie noted, but seeing that softening reflected in premium prices “is not going to be quick. It’s going to be a long, slow road, I think.”