Brokers should carefully assess their own exposures when renewing PI – Pen Underwriting

The UK professional indemnity (PI) market continues to be characterised by fierce competition and downward pressure on rates – the natural consequences of increased capacity flowing into the sector over the last few years, supporting new entrants with strong appetites for growth. And the brokers’ PI market is by no means immune.

That means brokers, as buyers of PI cover, are enjoying more choice in terms of price and propositions, just like their own clients across the wider commercial insurance buying landscape.

In these competitive conditions, it can be tempting for brokers to switch PI providers. But timely engagement with their incumbent insurer around premium saving expectations could deliver the same results, while also maintaining continuity and developing a valuable long-term relationship.

Certainly, just as with client risks, the potential for premium savings by moving away from an incumbent to a new or alternative market, should not be misinterpreted as, or mistaken for, lower risk and exposure.

Complex class

If anything, broker PI is becoming more complex as a risk class, with changing or new areas of exposure coming to the fore. Take, for example, Consumer Duty, with its heightened professional obligations and additional procedural evidencing requirements as part and parcel of today’s regulatory regime.

Meticulous due diligence, record keeping and written follow-ups of recommendations have always been the key to successfully countering allegations of broker negligence and defending claims. Consumer Duty has only broadened and deepened the demands of that documentation.

Then there is the undercurrent of technological advances and changing working practices, which have real potential to create waves in the broker PI market. Simultaneously, these have the potential to be a new source of claims against brokers, as well as reduce their PI risk.

Therefore, as specialist PI underwriters, it is vital we take a cautious approach to assessing tech risk.

AI is the obvious example, with policy comparison tools likely to be the most common area of AI adoption among UK broking firms to date. While clearly the use of such tools could result in reduced room for human error, as well as bringing enhanced efficiency to a time consuming task, it could also be reducing the opportunity for experienced practitioners to spot and interpret crucial nuances between complex policy wordings that could prove material.

The continued wave of broker consolidation is another double-edged sword from a PI risk perspective. With UK broker M&A driven to a significant degree by the larger brokers, this could result in an improved risk profile, as acquired entities adopt more stringent quality control processes and procedures.

Equally, the drive for consolidation resulting in a smaller number of larger insurance brokers is potentially heightening broker exposure to claims. Experience tells us that, as brokers merge, there is a danger of distance emerging if relationships, know-how and understanding of customer needs become dislocated through the integration process.

Performance pays

So, whilst it can be hard for broking firms, just as much as other professional advisors, to ignore potentially significant premium savings by switching PI providers in the current competitive market, insurer behaviour and payment performance at the point of claim are a barometer that brokers can’t afford to overlook.

What’s the new market’s track record on reservation of rights, the taking of policy points, the provision of dedicated claims managers, speed of intervention and ongoing service to prevent claims deterioration?

Every softening market inevitably brings a higher frequency of claims against brokers. And the PI tail is a long one. Continuity of insurer is therefore a consideration that brokers should never take lightly, for their own insurance cover as well as their clients.