Why the PII market is changing – and steps you should take now.
Up to 18 months ago premium rates had remained stable for accountancy firms for a number of years. Indeed, this stability had seen policyholders benefit from plenty of competition among PI insurers, thus making arranging competitive cover relatively straightforward.
Over the past year or so, this stability has begun to break down, with insurers’ appetites increasingly diverging and their rates rising accordingly or generally becoming more selective.
As a result, practitioners are likely to have experienced increased premiums, restricted coverage or even a decline to offer terms from their holding insurer.
Having said this, there is a small percentage of accountants who are seeing their premiums reduce, but these are likely to be those who are claims free and carry out a very low risk work. We always recommend that you review the cover provided to ensure it is adequate and compliant.
How did the change in market come about?
After a review by Lloyd’s of London towards the end of 2018 found non-US PI insurance to be one of the poorest performing classes of insurance in the market, insurers were driven to review their profitability in this space. Many, citing an increase in high severity claims, took the decision to withdraw from the market completely while others decided to reduce their capacity.
The knock on effect of this, whereby insurers looked to address their loss ratios, was bad news for some, in particular those firms with a poor claims experience or undertaking work considered to be higher risk such as tax mitigation, audit, corporate finance or overseas work.
Unfortunately this stance has not changed and indeed looks set to continue for the foreseeable future. The devastating effects of coronavirus have also seen insurers evaluating their books, considering the financial impact this will have on their future and how they trade going forward.
How best can I prepare for my renewal?
An early approach to your PI renewal has never been more important than in the current climate, so when you receive your renewal invite, don’t put off completing the forms until the last minute. Firms must be prepared to spend more time preparing for their renewal submission and perhaps even answering additional questions from insurers where they would not have requested this information in previous years.
If you undertake activities that insurers consider higher risk, or if you have had a claim made against you or your firm, try to provide insurers with as much information regarding this as you can.
If there are supplementary forms to complete, such as a tax questionnaire or coronavirus questionnaire which asks you to detail any new risk management procedures that your firm has put in place, be as thorough as possible – there will always be a reason insurers have asked this. Likewise if you are asked to provide details of what you have done to prevent a recurrence of a claim, look to give insurers comfort that you have analysed the situation and, where possible, made improvements to the way you run your practice.
Aim to present the information as neatly as possible as a clean, legible submission always makes a good first impression. Remember also, that in accordance with your duty of fair presentation, you have a legal obligation to provide insurers with all material information that could affect your insurance, whether positive or negative - so, if in doubt, include it!
You may also wish to include supporting documentation such as an example Letter of Engagement, details of your risk management procedures or even your business continuity plan. If you do carry out work in higher risk areas it may also be beneficial to include details of the qualifications or experience held by your staff in these areas.
Evidence of a well-run, efficient practice will only work to your advantage.