Professionals face hardest market fot 15 years ahead of 1 September renewals
Professional indemnity (PI) rates are rocketing by up to 500% as the 1 September deadline for solicitors PI renewals looms.
The World Trade Centre disaster, gigantic collapses such as Enron and Worldcom and the failure of a significant provider in Independent have crunched capacity in PI.
Experts have called it the hardest PI market for 15 years, after years of steady reductions in the cost of cover. This will result in cover being finalised very late this year.
Alexander Forbes Professions executive director Trevor Moss said he had seen "pretty draconian" increases on the primary layer of cover.
"On the higher layers, it's purely supply and demand. And with capacity increases hard to come by, rates on the top have been blown out of proportion by 400% or 500%," he said.
"All professions are badly affected. Capacity in the accountants market is about as bad as it has ever been, but they're certainly not alone."
Moss said one of his clients, a professional firm in the construction sector, had its premium rise from £700,000 last year to £2m, despite halving its indemnity.
He said other firms that were willing to pay as much as necessary still could not get the level of cover they desired.
Reynolds Porter Chamberlain insurance partner Alex Hamer, who specialises in the liability market, said that while some large firms could turn to captives in such circumstances, most firms were forced to accept lower limits for the same premium.
"From discussions I've had, premiums are up o
Aon Professional Risks executive director Elizabeth Mullins said a true picture of the state of the market was unlikely to emerge until August.
"It's too early to say how it will pan out, but it's expected there will be impact on the excess layers as well as the primary layers," she said.
Solicitor and QBE PI underwriter Mark Casady said he expected the market to be very late in finalising cover this year.
"Insurers are unwilling to release their terms early for fear of losing out, they want to see how other players are operating," he said.
"Insureds want to play the market by collecting a wide number of quotes, which then leads to a chicken and egg situation.
"This will be especially pronounced in the last week of August."
Casady said that Bermudian and US insurers were looking to enter the market, which they saw as lucrative, but not all would end up staying.
"As foreign insurers, they may not necessarily understand exactly what they're becoming involved with," he said.