Industry experts debate whether broker schemes could solve professional indemnity insurance’s (PII) woes after SchemeServe revealed PII schemes netted brokers the most income between 1 April and 31 September 2021
WE ASKED: Are broker schemes the answer to professional indemnity cover challenges?
Gordon Warnes, broking director, Cavendish Munro Professional Risks
“The answer is yes - and no. Is the hard market ending? Will more capacity return?
“Some areas will soften more quickly than others. Capacity will rush to some sectors and be glacial in others. Schemes are an answer for some lines of business, but not all.
“As anyone who places, underwrites or buys professional indemnity (PI) cover will know, the market remains challenging.
“Underwriting appetite has narrowed to focus on risks that remain attractive. Underwriters’ views will differ on what that attractive risk looks like - although there will be consensus around what is least appealing.
“Schemes can manage the short-term impact of these factors by pooling similar risks within an insurer’s appetite.
”A scheme that has enjoyed wider cover in the soft market may not see hard market exclusions or restrictions applied as quickly as elsewhere. Rate increases may also be less aggressive if the scheme is performing well.
“However, schemes are not immune to hard market factors and poorly performing schemes may well see their perceived benefits disappear rapidly, leaving scheme members to seek alternatives. The shock of the open market could prove too much for some.
“Schemes have their place and true affinity schemes with strong common risk management, control of scheme members and an agile approach to changing exposures will certainly prove their worth.
“But the days of brokers creating a scheme from a loosely linked group of professionals will not be enough to justify improvements in coverage or pricing that were common in the softer market.
”For many, the current market best suits a well managed firm being presented to insurers on its own merit by a competent and experienced broker.”
Paul Coleman, managing director, Peach Pi
“Broker schemes can, and should, be at least part of the answer to PI cover challenges.
”Schemes are integral to the PI market and rely on the expertise of the broker and its relationship with the insurer and policyholders for successful placements.
“We believe the industry in general needs to re-establish this ‘virtual triangle’ of trust and conditions within the PI market.
“Each profession - and their subsets - face different challenges within the current hard market. The purpose of a scheme is to provide bespoke solutions for risks and subsets of risks that are ring-fenced through a meeting of criteria.
“Providing a schemes-based solution to the challenges currently being seen across professional sectors comes from focusing on the issues that have driven the change in market conditions – this is where broking expertise and agile underwriting comes to the fore.
“While it is too simplistic to suggest that one-size-fits-all, especially with professional services now being so broad, complex and diverse in their offerings, schemes have a valued place within the PI market and should be at the forefront of providing relevant and cost effective solutions for policyholders.”
Simon Lovat, director, Inperio
“No - broker schemes represent one of the biggest failings and conflicts of interest in the intermediated PI market. Such schemes remove transparency and independent advice while increasing search costs to buyers.
“Most professionals believe that when they utilise a broker to place their PI insurance, the broker is providing them independent advice and a broad view of the products available in the market.
”Broker schemes remove or materially skew that advice and access to alternative products because brokers are financially incentivised to place business in their ‘in-house’ schemes, while overlooking other open market solutions that may be more suitable for clients, but are often less financially beneficial to the broker.
“This problem does not only occur in the placement of policies, but also in the handling of claims, where brokers utilising schemes have often negotiated profit commissions or further incentives from their scheme insurers.
”Such inducements create perverse outcomes and conflicts of interest - for example, where the denying of a claim provides the scheme broker with a financial reward at the same time that the broker is often claiming to be providing advice to support a policyholder in settling their claim.
“The only beneficiary of broker schemes are the brokers themselves, with clients often receiving opaque advice on the true availability of PI solutions and the coverage available to them.”