The
PROFESSIONALS
Professional indemnity is a core part of many brokers’
portfolios, and one that’s set to grow as Australia changes
to a service economy.
Insurance Business
gets four PI
experts around the table to talk turkey
What are the big issues for professional indemnity insurance at present?
James Stringer: Expansion of cover is a significant issue, with clients seeking to transfer business risk that would originally have been their business risk. Increasingly, clients are looking for almost quasi-financial guarantee covers; this is something we, and most professional indemnity insurers, would struggle with, particularly in the building, construction and engineering sector.
We’re in a highly competitive market too. While that’s good, everyone’s looking for an edge, so coverages are expanding. Coupled with that, increased competition is putting downward pressure on, which is not necessarily a good
long-term mix. Ultimately, it does leave the industry challenged as to what the focus of our insurance should be – whether it’s just professional indemnity or whether it should expand into other areas, such as those quasi-financial risks or the transfer of business risks. And, of course, charging adequate premium for the exposure.
Glenn Ross: An overabundance of markets writing this product has created an extremely competitive rating environment, resulting in rates that are marginal against risk being assumed. That minimises returns for this class of business.
Gary Gribbin: The economy continues to be sluggish in terms of growth, and this continues to affect business activity and start-ups.
PROFESSIONALS
However, the legal environment remains stable and poses no threat at present. Rather, we need to ensure clients utilise appropriate terms of engagement and are encouraged to improve their risk-management practices.
The industry continues its drive to distribute these products online. This pushes more responsibility onto brokers and homogenises what has traditionally been a fairly complicated product. It becomes more important to transact with an underwriter that can actually underwrite, apply common sense and make decisions.
Requirements on the insured in relation to waiver of subrogation or contractual liability extensions must also be a consideration. Brokers must be able to provide assistance to their clients in this area, even if it is just to push back against requirements.
Rob Collyer: One of the big issues is education. With so many younger people joining our industry now, there is a great need for education and training. With an abundance of capacity in the market and so many players distributing this capacity, it is
important the new generations understand risk exposures and not just rely on price.
The online versus manual debate continues to rage. It is important that any markets that offer an online capability to purchase PI insurance also back this up with underwriters available to offer expert advice and discuss the needs of the client.
Still, it is an ever-changing and exciting market, with new products such as cyber liability set to provide brokers with new opportunities but also provide a challenge in understanding the risk and being able to market this to their clients.
What do you see as the main growth opportunities, particularly sectors?
Gary Gribbin: Health, allied health, aged care and home services all continue to experience growth. There is also continued expansion for occupations that can be considered to be professional. It is becoming more common that anyone who provides any sort of design, advice or specification, whether they charge a fee or not, is considered a professional. This is also contributing to market growth.
James Stringer: Everyone’s pretty focused on the security and privacy sector (aka cyber). The privacy legislation has recently changed, for good reason, but it is still an uninsured area for many businesses. The government hasn’t publicised it as well as they might have, and the Privacy Commissioner has warned they will be taking a ‘big stick’ approach: If there’s a breach, clients will be exposed.
That will grow, both in Australia and overseas. Even in the short time that’s been actively sought by clients, we’ve seen a lot of growth.
Glenn Ross: Because rates are being pressured down, growth opportunities are available to agencies concentrating on niche areas – whether that is providing combined covers or targeting risks other markets ignore, perhaps through a lack of understanding.
Rob Collyer:There are three core growth areas from our perspective:
1.The mining and resources industry: While there is a lot of talk about the ‘boom’ subsiding, there is still a large proportion of professionals involved in the resources industry who are only covered for general public and property liability exposures. Engineers, surveyors, architects, geologists, mineralogists and metallurgists, together with surrounding business services such as OH&S consultants, management consultants, business strategists and environmental consultants, all present a great opportunity for brokers to target.
2.The real-estate industry: Changes to regulations mean all licensees must hold professional indem-nity insurance as a condition of their licence. This encompasses real-estate agents, stock and station agents, business agents, strata and com-munity managing agents, and on-site residential property managers. The minimum requirement for NSW real-estate agents is now $1m any one claim and $3m in aggregate.
3. Multimedia: With online subscriptions and digi-tal advertising outstripping traditional print me-dia, the need for an all-encompassing multimedia PI cover is escalating. With the emergence of the digital age, cyber policies have become the
THE ELEVATOR PITCH:
WHY SHOULD
BROKERS/CLIENTS CHOOSE YOUR PI
PRODUCT INSTEAD OF OTHERS?
Glenn Ross: The coverage offered by our very recently upgraded wording is as
broad in coverage as it is easy to understand. Our pricing within the niches we tend to target is certainly competitive. Our underwriters are very knowledgeable, easily accessed and customer-service focused.
Gary Gribbin: There are a number of benefits to the ProRisk product suite,
including:
• Products supported by excellent service and the ability to talk to an underwriter;
• Local claims handling by the specialist ProRisk in-house claims team;
• Technical assistance provided through the policy process;
• Multi-year run-off cover available on ProRisk policies, available up to seven years;
• Consistent and stable pricing;
• Large capacity of up to $20m, and
• The financial security of our products and a proven history of good performance. Rob Collyer: We have tailored our PI products to each industry to ensure the cover
meets the requirements of the client. Specific products are available for niche areas
such as trainers, resources professionals and design and construction professionals. We have an experienced team of underwriters and product experts to answer all your questions. We provide the brokers with access to our online quoting tool, which allows the user to quote, bind and issue documents in a quick and seamless manner. Brooklyn is all about ‘making you the expert’, so we have recently redesigned our website to provide the brokers with the tools needed to be able to market and sell professional indemnity insurance too.
James Stringer:Well, they’re pretty much best in class! Zurich’s policies are clear, concise, provide the client with certainty of cover, and they provide a number of
benefits that aren’t in our competitors’ cover. For example, we provide
late-arising extensions cover, which means if you buy a policy now and we bring out a new policy form in six months with additional coverage enhancements as standard, you have the right to request that additional cover at no additional charge.
Also, we have an extension where if we can resolve a matter without the cost of legal expenses, we will halve the client’s deductible on a number of our policies, up to a capped amount. If we can resolve something without lawyers, we feel it’s only fair to share that saving with the customer.
The other key benefit is that we can arrange international insurance programs.
If you’re an insured headquarter in Australia and have a subsidiary in China, we can issue a master policy in Australia, and through Zurich or our partners in China, we can issue a local policy in China as well. We can do that in well over 150 countries.
flavour of the month, but brokers must not forget there are great opportunities in the traditional multimedia space as well.
Are there any challenges facing the PI space at present?
James Stringer: It’s the same challenges that the industry has always faced, really – increased competition, expansions of cover and increasing claims. As an industry, when the economy slows, you tend to see more PI claims, such as after the GFC. There are more disputes – not necessarily claims, but frictional losses.
Overcapacity is also a big challenge. Last time I looked, there were more than 60 PI insurers in Australia. It’s a small market, with as many insurers represented as in larger markets like that of North America. You’d question whether the Australian market is big enough to sustain in the longer term the number of insurers in it. Still, I don’t think we’ll see rationalisation because there’s a lot of capital out there seeking a return, and the insurance industry tends to provide a better return than the bond rate.
Another challenge is government regulations affecting the professions. The previous government was very proud of how many pieces of legislation they passed. But more legislation means more compliance for business, which means more opportunities to get something wrong.
Glenn Ross: If rates become unsustainable and/or the PI market profitability becomes too marginal for its underwriters in the agency space, the markets will inevitably reduce and risk/rate pricing will increase. This will present challenges for some binder holders.
Gary Gribbin:Key challenges from my perspective include:
• Maintaining reasonable profitability (return on capital) in a competitive market;
• Developing and attracting good-quality staff, and • Improving risk selection.
Rob Collyer: Insurers have been hit hard in recent years by valuers, financial planners and property developers. As a result, capacity has been reduced or withdrawn completely. These continue to be the areas where the market has not yet found an ideal solution that works for all parties. It will be an interesting space to watch over the next 12 months.
What should brokers be talking to their clients about in regards to PI?
Glenn Ross: Pricing has been at its lowest for a number of years now. Clients have become accustomed to this type of insurance being priced considerably lower than was the case five or more years hence.
Brokers need to be alerting clients to the possibility that rate/pricing increases could happen as the soft market turns. Having said this, the overabundance of capacity in this sector will likely see a slow rate rise, rather an accelerated one.
James Stringer:Brokers should be talking to their clients about raising their limits. Professional indemnity insurance is comparatively cheap, especially when you consider the price it was after
Because rates are being pressured
down, growth opportunities are
available to agencies concentrating
on niche areas – whether that
is providing combined covers
or targeting risks other markets
ignore, perhaps through a lack
of understanding.
James Stringer Acting head of financial lines at Zurich Glenn Ross Managing director at MECON Winsure Gary Gribbin Underwriting director at ProRisk Rob Collyer Underwriting manager for professional risks at Brooklyn Underwriting The panellists
the HIH crisis, when insurance was probably five times dearer than it is today.
The claims are getting bigger and the legal environment is getting more litigious, so $1m, $2m or $5m may not be adequate for clients. They may want to consider limits of $10m to be relatively safe if they’re a small business, depending on their profession.
Also, I would be talking to them about taking out a security and privacy (cyber) policy if they have potential exposure under the new privacy legislation.
Gary Gribbin: Brokers should be talking risk management, risk management and more risk management to clients!
They should also make it clear to their clients what the ‘claims made’ basis is, how it operates and what it means to them, and also making them aware of claims-made issues.
Other things to discuss include cyber insurance extensions, the benefits of placing professional indemnity and public liability with the same insurer, if there are any grey areas such as IT and recruitment, and protecting continuity of cover with the same insurer if possible.
Rob Collyer: Pay attention to service contract clauses, and in particular whom the liability is passed on to, plus the minimum requirements for professional indemnity cover. Ensure risk-management procedures are in place to reduce any PI exposure, and ensure clients have the adequate level of PI cover!
