Insurance Brokers Professional Indemnity Market Update

[2 Minute Read]

The woes for buyers of professional indemnity insurance continue as the professional indemnity insurance market continues to harden, with insurers increasing their premiums and excesses and reducing their lines and limits of indemnity.

Insurance brokers are not immune from these conditions as they themselves have to procure professional indemnity for their own business activities and are finding it increasingly difficult to secure cover. We are seeing premium rate hikes applied to commercial insurance brokers’ professional indemnity renewals, typically between 30% and 60% and in some cases significantly more.

Some insurers have stopped writing insurance brokers’ professional indemnity business altogether and this reduced capacity is putting further strain on an already fraught market.

We are also seeing insurers applying significant exclusions to insurance brokers’ professional indemnity policies in an attempt to limit their exposure. An example of these are exclusions relating to COVID-19.

COVID-19 exclusions are a particular worry for insurance brokers who could find themselves in the firing line from their customers who have been unable to make a successful business interruption claim on their policies for losses suffered as a consequence of the government lockdown in March 2020. The reality of course is that the vast majority of policyholders were unable to make a claim even after the High Court COVID-19 BI test case and the Supreme Court appeal which reportedly ‘found in favour of policyholders’. But the way the court ruling was reported in the press (that a windfall is now due to most businesses) is likely to leave some policyholders feeling left out that they were unable to claim, and this could lead to claims being made against insurance brokers.

Whilst these types of claims against insurance brokers have no merit (the pandemic could not have been reasonably foreseen and planned for within an insurance programme and even if it had been, the cover, if available at all, would have been prohibitively expensive), this may not stop policyholders from trying to make a professional indemnity claim against their broker, and if they do, these claims need to be defended which would be costly.

The COVID-19 policy exclusions being applied by insurers to insurance brokers’ professional indemnity policies are far reaching as the exclusion wordings even seek to exclude claims which are ‘indirectly’ linked to COVID-19. This significantly increases the risk exposure faced by insurance brokers. For example, a policyholder has a claim rejected by its insurer for failing to adhere to an ‘unoccupancy condition’ in their property policy, whilst their business is closed down during a lockdown. They make a professional indemnity claim against their broker for not highlighting the unoccupancy condition to them. If the broker has a COVID-19 exclusion applied to their professional indemnity policy which excludes any claims directly or ‘indirectly’ related to COVID-19, then the broker may not be covered in this scenario.

COVID-19 exclusions are also an FCA compliance concern for insurance brokers and we’d recommend that insurance brokers seek cover without any such exclusions (if cover is available) even if it means paying a higher premium.

The insurance market is cyclical and we hope for a return to more settled market conditions and with it more palatable policy terms for insurance brokers professional indemnity, as more insurer capacity comes back into the market. However it is clear that this isn’t happening yet and unfortunately in the medium term at least, it looks as though we are set for more premium increases and coverage restrictions for insurance brokers’ professional indemnity.

Champion Professional Risks are specialist insurance brokers with wide market access. If you need help with your insurance brokers’ professional indemnity placement please contact us for a no obligation discussion.

0330 128 9828