Our clients are familiar with our Annual Information Alerts which attempt to provide insight into conditions within the Professional Indemnity (PI) insurance market and contain our predictions for what’s coming over the horizon. In the face of increased market volatility in recent years, these alerts took on greater significance and we hope they fulfilled the intention of helping firms navigate through the challenges of recent renewals.
Our last Information Alert was issued in December 2023. At that point, our prediction was that the market would experience a ‘levelling off’ in 2024, with insurers assessing the performance of their account and being able to apply greater individual consideration in their underwriting. The outlook for the market was more positive than we had been able to report for some time and mid-way through 2024, it feels like our predictions were largely correct.
Whilst certain sectors remain particularly challenging, and individual renewals will obviously be influenced by risk and claims profile, it feels like we have entered a period of stability.
So what have we seen in 2024 so far?
Our experience to date is that underwriters are engaging positively with existing clients as we see some signs of increased appetite across segments of the wider market. We continue to receive approaches from firms who have been insured elsewhere previously and who have struggled to source appropriate cover; thankfully, there are fewer firms currently finding themselves in the distressed position of being unable to secure insurance protection.
All of this is good news in the round but it would be wrong to suggest that we are now ‘out of the woods’. Affordability remains a real problem and the significant differences in the cover insurers are prepared to provide has left many firms, often unknowingly, carrying a higher degree of uninsured exposure. As outlined in our December update, questions also remain about the structure of certain insurance vehicles – whether that be their understanding of the market and their commitment over the longer-term or simply security levels – all of which demands a higher degree of scrutiny from an insured.
Equally importantly, we anticipate the publication over the Summer of the long-awaited report into the Grenfell Tower disaster and the findings of Sir Martin Moore-Bick. Whilst those conclusions are unlikely to be determinative on each potential ‘fire safety’ claim we have received from our clients, they will set the legal backdrop against which those claims will be litigated and will likely significantly impact the scale of potential settlements in the years to come. We will of course keep a close eye on developments and report further.
Making good decisions
Whilst the uncertainty around the magnitude of the industry’s fire safety exposures is a particular feature, none of the underlying issues are new. Structuring a PI insurance programme can be complex but at its heart, our role is about ‘making good decisions’ in the interests of our clients – that is true of our intent at any point in the insurance market cycle. It is always about applying knowledge and understanding in order to provide best advice; balancing the key components of cover, security and cost whilst also helping clients to manage their risk effectively.
If there is a simple series of lessons to be learned from the last few years, it is about the value in adopting a long-term, sustainable approach and being careful in managing exposures, particularly in the area of contractual risk management.
Tackling underlying risk
That point cannot be over-emphasised. The liability environment in which consultants are operating has become increasingly challenging, with a growing gap between the liabilities firms are required to take on and the cover afforded under PI insurance policies.
At a wider level, the introduction of the Building Safety Act in the UK creates potential uncertainty around future exposures, and recurring issues such as joint and several liability, continue to fuel a complete imbalance of risk and reward for the consultancy sector. That is evidenced through a claims environment that is characterised by an increasing number of high-value claims, which see consultants shouldering liabilities which are completely disproportionate to their culpability, their involvement in the project or the fees they are earning.
As reported in December 2023, the changes we are now seeing in the insurance market are more about the usual ‘market cycle’ and the ebb and flow of capital than any fundamental change in underlying risk. And therein lies a perennial problem – until we see a significant change in the risk landscape, the PI market is unlikely to deliver the level of certainty and long-term stability that we would all wish to see. Instead, it will be a case of continued volatility.
That is why we continue to invest significant time and resource in tackling underlying risk. Indeed, it is why we:
- Review almost 10,000 contracts a year on behalf of our clients
- Support a range of industry bodies in their efforts to improve their members’ trading environment
- Engage with Government and other stakeholders on key aspects of legislation and some of the most pressing challenges facing those in the built environment sector
- Continue to lobby, educate, inform and collaborate at all levels
Some of this work is covered elsewhere in this edition of Insight but all our activities are about creating a better, more certain future for our clients. Significant advances have been made on individual issues but much more needs to be done to achieve the fair risk vs. reward balance that we believe is required to underpin:
- a sustainable consultancy sector; and
- a stable and competitive PI insurance environment;
to deliver a more resilient model that can serve the interests of all parties into the future.
Further further information and support, please get in touch.
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