Professional Indemnity (PI) has been described as the “red light district” of the London Market by a leading insurance figure at the Euroforum seminar.
Reg Brown, former president of the Chartered Insurance Institute (CII) and former lead underwriter for RE Brown and Others syndicate 702, was chairing the discussion on the future of PI in the market.
Brown, who has been working in insurance for 40 years and in the Lloyd's PI market for a quarter of a century, said: “One of my abiding memories will be that the PI market has been littered with incompetence and has been tainted by too many fly-by-night, here today, gone tomorrow merchants.
“One of the recurring themes over that period was that PI was a class of business where the inexperienced underwriter could easily delude himself into thinking he was making money when, in fact, he was losing it by the bucket load.
“It was all in the reserves and the time lag between the occurrence of a claim event to the final settlement of the claim is such that the foolhardy optimist has a long period during which to keep underwriting, when the best thing would be to put his pen down.
“We've all seen it many times. We've assumed that the underwriter with the cheapest rates on the block has a game plan; masterly objectives which the rest of us were too dim to see. In fact, as it turned out, we were wrong. Many of them had no idea what they were doing. They were simply writing for premium income at whatever price they needed to charge to get the business.
“So many underwriters have prostituted themselves over the years that it has left me with a feeling that the PI market has been the red light district of the London Market.”
Brown added that qu-ality underwriters have been “constantly und-ermined by the poor performers; add to that the freedom with which underwriters give their pens away to people even more incompetent than themselves and you have a lethal cocktail”.
He warned there was a need to learn from past experiences “or we will be condemned to relive it in the future”.
“I believe that many underwriters have simply failed to understand the dynamics and appreciate the nature of the business they were in,” he said. “I see few signs that the present breed are substantially better.
“The future is bleak unless PI insurers can kick the habit of looking at historical, and not fully developed, claims histories as the sole pricing mechanism.
“Unless we grasp these issues with both hands, underwriting losses will continue to grow and underwriting profit will be a distant dream.”