Harsh economy blamed for reported 50% increase in negligence claims as insurers toughen up
Brokers face huge increases in the cost of their own professional indemnity insurance following a rise in negligence claims during the financial crisis.
Insurers are set to increase rates by 10%-20% in 2010, according to leading insurers specialising in the sector. QBE head of PI David Harries said that he was looking to increase rates after the firm had experienced a 50% rise in claims notifications since 2007. He said: “In 2009, claims were up 20%-25%, and in 2008 they were up 25% as well, which is a significant uplift.”
Meanwhile, AIG and Zurich both said that PI rates would increase for brokers.
International broker Lockton estimated that a 20% rate increase for a commercial broker with a turnover of £1m in fees and commission would see average premium rises of £1,400, from £7,000 to £8,400. Lockton associate director Neelay Patel pointed out that this was in line with predictions. He said: “Insurers have talked about increasing rates for brokers for a number of years now, especially for commercial brokers.”
Biba technical services manager Graeme Trudgill added that rates had been low for some time. He said: “Brokers that sell professional indemnity insurance and the insurers behind them are saying they do need to move them.”
Trudgill added that the increase in accusations of broker negligence is a direct result of the current economic environment. He said: “In this recession, we have seen insurers tightening up on claims and we are seeing without a doubt more claims rejected by them. That will inevitably mean the client will go after the broker.
“There are also more fraudulent claims in this recession, which insurers are going to reject and therefore clients will try and complain and make an accusation there. It’s the times we are in.”
Harries added that there was little brokers could do to mitigate an uplift in claims. But he advised them to improve general housekeeping to ensure that negligence claims were not upheld. He said: “They [brokers] can do things better, such as making sure that a file is complete and that they take notes of everything, including meetings and telephone conversations.”
He added that, often, brokers have advised correctly in the first instance but cannot prove it. He said: “A lot of the time, brokers have done the right thing in the first place and advised clients that they are underinsured, but if a broker can’t prove their argument by issuing documents or notes, then they are in a pretty poor position.”