The construction professional indemnity (PI) insurance market has constricted, with many firms operating in this sector finding that they are being faced with increased premium rates and reduced cover for their forthcoming period of insurance.
Some firms are now struggling to obtain insurance terms, and in extreme cases, not being able to obtain cover at all.
UK construction PI has been in "soft" market conditions for over a decade, but it is currently the casethat the cheaper rates have been withdrawn, and excess layer premiums have risen. Some insurers have withdrawn from the construction PI market altogether.
This has been fuelled by a number of factors, including claims provoked by the Grenfell tragedy, and poor underwriting results in 2017. Lloyds has instructed syndicates to limit the amount of new PI that they write in 2019, due to the poor performance of this class of insurance compared to other areas of insurance. There are further concerns that reinsurance renewals in January 2019 may rise on the back of recent adverse results, and that this may be yet another driver for increased premium rates in 2019.
Nevertheless, it remains the case that there is room for manoeuvre, and a firm is not powerless to mitigate these wider insurance market conditions in their own particular circumstances. A coherent and prudent renewal strategy can greatly alleviate the effects of risk averse underwriting.
These are key steps which a firm should take to strengthen its insurance position.
1. Approach the market early
Do not leave renewal until the last minute. If initial approaches to the market have produced no results or lacklustre results, you will not have any time for further steps.
2. Presenting the right information is key
Not offering information is a short road to a declinature. The renewal presentation needs time and consideration in a hard market.
It is also the case that many insurers are now asking for additional information which has generally not been collated by firms as part of their own management information. This takes time to identify, and the markets will not quote best terms in its absence.
However, the above observations notwithstanding, it is not all about slavish devotion to the proposal form and questionnaires presented to you either. There is already market experience of overly general questions being raised by underwriters, and where the underlying data is simply not captured by the firm. The questions are not set in stone, and identifying why the information is being requested may aid in more efficient approaches in collating and presenting what is actually the key data.
3. Differentiate your firm
When there are acute claims concerns, an insurer does not want the whole sector. They want the firms in the upper quartiles, and those that offer fewer concerns.
Whilst proposal forms ask key underwriting questions, they do not capture the essential character of a firm. It is therefore well worth supplementing the core form with information regarding the market strategy and operating philosophies of the firm. Who are key clients and key areas of work? How did the firm get to this position and where is the firm heading to next? A firm which has a clear vision of where it wants to be in five years and how it intends to get there tends to have the same consciousness and positivity in other areas of its business. Share this vision and journey with the underwriter.
4. Use the open-market
As always, different insurers have different appetites, and are at different places in relation to their financial and performance milestones.
Whilst some insurers have left the construction market, other insurers see this as an opportunity to increase their market share.
However, they will be underwriting judiciously, and are interested in the firms who can show that they are not operating within the key areas affected, or can demonstrate better risk management controls, such that they have better mitigated the risks concerned.
5. Use the right broker
Use an insurance broker experienced in both the construction market and professional indemnity insurance.
A non-specialist broker may not be approaching the right markets. Worse they may be approaching the limited markets available in an unsophisticated way, with the result that these markets decline to quote. Closing key markets can be fatal in a limited market.
6. Approach the market, don't over-saturate the market
Avoid a scattergun approach via multiple approaches to the same insurer via multiple brokers. This creates confusion and dilutes the messages a sophisticated broker will be trying to convey to specific people - the people with the underwriting authority and understanding to quote your firm.
It is not just about approaching a particular insurer, but also about approaching the right underwriters within a particular insurer to obtain terms. Market knowledge and relationships are key in a relation to specialist insurance such as professional indemnity insurance. Once an insurer has declined to quote, it is often the case that the door cannot be re-opened.
The present market is an opportunity to turn a negative into a positive for wise firms.
For most firms, professional indemnity insurance is the third largest cost to the firm, after wage roll and office costs. Expensive insurance, like any cost, reduces the capital available for reinvestment in the firm, whether that is additional staff, more up to date technology, or marketing.
Over time, firms with unnecessary expenses lose ground to their more savvy competitors and lose market opportunities as a result.
Approaching your renewal in line with the above steps will give you a good opportunity to reduce your professional indemnity insurance cost, and pull ahead of less sophisticated competition.