Over 18 months ago, we wrote about the PI underwriters thought process in what PI underwriters care about. Since then, significant change has swept through the market. Industry pressures and underperformance have resulted in capacity reduction and a hardening of the PI market, with traditional professions bearing the brunt of that shift.
But we could all see this coming, right? Looking back, it’s easy, with hindsight, to see how traditional PI professions arrived at the current destination. Abundant capacity and commoditised policy language did little to allow for differentiation. Renewals moved frequently and rate, as the most obvious differentiator, took the hit. Insurers with growth ambitions sought to broaden their appetite to accommodate new business budgets. Underwriting questions or quote subjectivities became obstacles and inconveniences to binding business, so were replaced with streamlined transactional strategies and a portfolio approach. The continued emergence of capital through the vibrant MGA market (many using Lloyds capacity, incentivised by different distribution models or automated platforms) fuelled the trajectory. For the brokers, PI placement became more straightforward, with one of the main challenges centring on keeping the growing number of carriers happy and managing the impact of falling premiums on their own income. In a profitable environment, the response from insurers was to offer increased commission levels to attract greater volume, eating into profitability, but ensuring the market remained competitive.
Whilst it was plain sailing for many years, clouds were gathering. Talk of the non-US PI market losing significant sums emerged (£347m over 5 years, according to one article) and the sky darkened further when, in 2018, Lloyds announced a review of its bottom 10% performing classes, with PI firmly on the naughty step. The 2017 Grenfell tragedy and subsequent construction/cladding issues may have been the headline event that many attach as the trigger for the hard market, but the perfect storm had been brewing for a while, and has hit hard.
Those risks that had been placed in a relatively simple and streamlined fashion are finding more insurers are ‘no longer able to write PI’, have had a ‘change in appetite’ or are ‘re-evaluating their book’. This is nothing new of course. The difference now is that, until relatively recently, it would have been easy to pick a replacement and set another place at the table. This is no longer the case. Brokers are having to work harder to secure satisfactory primary terms and then having to source excess layers to supplement line size reductions on primary placements. Policy conditions are narrowing, exclusions are on the rise, and some of the premium increases have been mind-boggling.
Against this landscape, our original commentary on what PI underwriters care about still holds true. The case for solid analysis and good, old fashioned judgemental flexibility in the underwriting process has never been more important. No one knows how long the ‘harder’ market will sustain, but regardless of how choppy the water may get, there is still a means to navigate through. Our 5 top tips may help in some small way…