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PI Insurance Market

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The renewal date for firms Professional Indemnity policies looms and we find ourselves, as a profession, facing one of the most uncertain times since the introduction of the ‘open market’ insurance provisions.

CAPITA HIGH RESERVE
Year 28/04/2010
2000 – 2001 £140,779.50
2001 – 2002 £42,000.00
2002 – 2003 £349,804.00
2003 – 2004 £437,535.00
2004 – 2005 £29,036.68
2005 – 2006 £2,423,769.00
2006 – 2007 £4,395,729.50
2007 – 2008 £6,079,269.33
2008 – 2009 £55,286,643.10
2009 – 2010 £5,673,530.00

Of course the one thing it is not is an open market and this year it is proving to be a very restricted market. Last year we saw an increase in the number of firms being forced, if that is the correct phrase, into the assigned risk pool. Looking at the table above you can see that in just 10 years the reserve in the ARP has grown from a figure of £150,000 to over £5.6 million. In the previous insurance year it reached an astounding £55m and the potential growth this year is not just from higher demands arising out of property markets and commercial claims but the restricted volume in the market place. You have to believe that the life of the ARP is limited and with the debate around indemnity insurance and ABS’s I would not be surprised to see changes in the near future.

We have seen insurers such as Quinn exit the market due to financial difficulties but it would appear that there are a number of others looking to either restrict their book or close it all together to certain types of business. American backed insurers are questioning the profitability in the UK market and wondering if this will be their last year and the larger players such as Zurich and Travelers, who between them hold 25% of the market measured by premium, are said to be moving away from the lower end of the market place. If this is the case and Quinn are no longer present then smaller firms of 1 to 4 partners may just find that their market place has shrunk by 35%. Add to this the losses that have been suffered in the past two years by RSA and AIG, which will surely influence their book. Consider insurers like Hiscox whose entry into the market is always late and uncertain. Then you have a distinct reduction in capacity with no real apatite to take up the slack from the remaining players. New entrants into the market are few and far between. Allianz having set their stall out last year for £10m and filling it with what they believe to be good quality risk I believe don’t have an appetite for further growth and are probably the most successful new player. Other entrants are looking to fixed and closed schemes and the enthusiasm for off shore funds has waned. There is little hope of a new large entrant.

I am sure that companies like AIG writing a £36.5m book will continue to operate in the market but premiums are bound to firm up and those with poor records or inadequate risk management systems would do well to enter the market now. Smaller firms may, again this year, find it very difficult to attract cover at the lower rates they are used to and any rise on top of the already increase prices from the 2008 market may prove to be the last straw for a number of these firms.

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Written by Andrew Hodges

July 13, 2010 at 6:37 pm

Posted in Comment, Compliance, LinkedIn

Tagged with , , ,

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