With 2009’s rates hikes and four-fold rise in claims, the PI market faces a cautious new year

For seven years, the professional indemnity (PI) market was relatively quiet, as the UK enjoyed an era of unprecedented growth. The economic downturn has completely changed that landscape, however, with insurers facing rising claims as clients are hit with professional negligence lawsuits. This has had an significant effect on rates and capacity, with further change expected for 2010.


The professions that have faced the greatest rate rises this year are surveyors and solicitors, and they will continue to do so. Marsh believes there will be rates increases of anywhere between 10% and 100% over the next 12 months, as insurers adjust to a four-fold rise in claims in 2009 compared with the previous year.

Meanwhile, the annual battle to find cover for solicitors before the October deadline was well-publicised. Small law firms specialising in conveyancing were hardest hit, with some premiums rising by 400%. The trend of targeting small law firms with premium hikes will continue in 2010, as underwriters seek to protect themselves from the greatest risks.

What is noticeable is that the rest of the PI market has remained stable. The general consensus is that professionals in IT, estate agency and media have escaped largely unscathed from rate increase. Despite the recession, the risk level still remains low for those groups.


At first glance, it might seem that PI market is flush with capacity for 2010. The share of PI for solicitors in 2009 rose from £217m to £241m, according to the Solicitors Regulation Authority (SRA).

However, although there are no other official statistics for PI capacity in the UK, general consensus sways towards the view that capacity has shrunk. There are three reasons for this. First, insurers have scaled back and become more selective on the risks they write, having undergone an increase in claims. Secondly, reinsurers have also pulled back capacity, which is having a knock-on effect on primary insurers that have less capital. Finally, there is a feeling that we are heading for a ‘W’ shaped recession, rather than a more optimistic ‘V’.

Despite this shrinkage in capacity, there have been two major new entrants into the market. Allianz, which signed up a team from AIG at the beginning of 2009 and started writing in April, and also AXA. AXA will be one to watch in 2010. The insurer has offered to create D&O and P&I products, and aims to write £50m premium by 2013. In the solicitors market, there was a late entry from Ukranian insurer Lemma, while Lloyd’s-based syndicate Pembroke Underwriting dipped its toe into the sector for the first time.

As the PI market heads into the new year, insurers will be wary of their PI book. Now more than ever, what is needed is careful risk selection and sensitive pricing to see them through choppy waters.


Key points

  • The recession has fuelled a four-fold rise in professional indemnity (PI) claims during 2009, with surveyors and solicitors hit hardest
  • Insurers are seeking to protect themselves by scaling back capacity or increasing rates – by as much as 400% for small conveyancing firms
  • Overall capacity within the PI?market is believed to have shrunk as a result, despite some new entrants into the market
  • Rates are likely to continue rising in 2010, with insurers needing to ensure careful risk selection and sensitive pricing