An increase in underwriting discipline has seen a rise in premiums and reduction in the availability of cover for professional indemnity (PI) insurance. Aoife Skehan navigates PI claims in a hard market
In Brief: Insurers have started to take steps to return to underwriting profitability which has resulted in a hardening of the market, causing contraction in the availability of coverage as well as premiums to rise, particularly for PI risks. Insurers and their insureds will require a defence panel firm which can navigate changing claims behaviours in this market. Careful policy coverage investigations are necessary which include robust assessments of liability and quantum, timely conclusion of claims and value for money.
The market for insurance is cyclical, fluctuating between times when premiums are holding steady or decreasing and times when rates increase and coverage is more difficult to find, as was explained by Damian Kilpatrick, Managing Director, AON, and Michael Davis, Director of Financial & Professional Services, AON, during the Professional Negligence Lawyers’ Association Dublin Conference 2019. The conference heard that in early 2019 Lloyd’s of London introduced a risk-based oversight for underperforming syndicates as part of its ongoing performance review. The review has focused on syndicates that had not been profitable for each of the preceding three years; under-performing books in several syndicate classes, to include non-US PI risks; and also concentrating on the worst performing 10% of premium for each syndicate, the ‘Decile 10’. The Decile 10 review illustrated that “on a normalized accident year basis. Lloyd’s has been posting underwriting losses since 2014”. Insurers have started to take steps to return to underwriting profitability and this has resulted in a hardening of the market with reduced capacity; increasing rates; reductions in scope of cover; and fewer insurers in the market.
What should insurers and their insureds expect from their defence panel firm?
1. Discipline in adhering to best practice
As with all PI claims, careful scrutiny of policy coverage under reservation of rights remains essential once a notification or a claim is made. Insurers must be mindful of their duty to act with the utmost good faith towards their insureds. The Australian Federal Court in AMP Financial Planning PTY Limited v CGU Insurance Limited, “failure to make a timely decision to accept or reject a claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith . . . [where that arises] from . . . a failure to proceed reasonably promptly when all relevant material is at hand . . .”.
2. Experience to choose only those battles that can be won
For more complex notifications, indemnity investigations can necessitate the input of appropriate experts to assist in determining whether an alleged loss is one that is actually an indemnified peril under the terms of the policy, or if a particular exclusion under the policy applies.
3. Expertise to navigate to the end line
Where indemnity is confirmed, an early and robust assessment of both the insured’s liability and likely quantum of a claim is essential to ensuring a timely conclusion. Where a liability is established, early engagement with an insured, to understand both the operation of its business and the factual background to the notification, is critical to expeditiously managing the claim through from notification to conclusion. Securing the timely engagement of suitable experts is also key.
We have extensive experience acting for insurers in this area and are uniquely placed in partnering with both insurers and their insureds to navigate the changing claims landscape of a hard market.