David Turner on why the brokers' scramble for PI cover will get worse before it gets better.
At the height of the Cold War somebody once said, "everywhere there are spies, there are even spies to spy on the spies."
At the start of the 21st Century we can re-write this and replace `spies' with `regulators'. There is regulation everywhere; even the regulators are regulated. Almost all people offering services are regulated these days. One badge of regulation - let's not mince words - one obligation of regulation is compulsory professional indemnity insurance.
That concept in itself is not a bad thing. It has its genesis no doubt in the desire to protect the consumer. But like all theories, the reality in practice is somewhat different. In short the professional indemnity insurance market is the hardest it has ever been, and let's not forget September 11 hit insurance companies very hard indeed. It might not quite be a crisis, although the financial advisor firm who has been in business for 27 years, and now has to fold because they can't obtain FSA compliant professional indemnity insurance cover, may disagree.
So where has this problem come from? Why has it got so bad that financial advisors; actuaries; solicitors and surveyors (to name but a few) look at the renewal date of their professional indemnity insurance policy as some sort of potential doomsday. Well, as is perhaps to be expected, it is a combination of many things.
Firstly, we live in a time where there is an ever increasing claims culture, where the jokes about the American "sue `em and see" mentality have become reality in the UK. If people make a loss on a deal then they look for someone to pay. And this against a background of high profile financial meltdowns (such as ENRON) and very poor stock market performance. The economic climate combined with the complaint culture has unsurprisingly led to a growth of claims against professionals.
And if the claims do get to Court then Judges appear only too willing to hold professionals liable and to put high duties of care upon them.
It is no wonder therefore that the cost of professional indemnity cover is spiralling. But you cannot blame insurers. They run a business which hopefully should make an underwriting profit and in these days of difficult investment performance, you can hardly blame an insurer for not counting on an investment profit, even if professional indemnity business has a long tail. In short, the laws of supply and demand dictate the market place.
To those insureds currently looking for professional indemnity insurance cover, I am afraid the signs are that the market will probably get a little worse before it gets better. All I can suggest (and I do not want to use the word "advise" - or I might be held to be owing readers a duty of care) is to get yourself a good broker/insurer combination. Good luck out there.
