Article written and provided by Sophie Kingwell- Meader, Account Executive at Estate Insurance Group, for Beacon Gainer, private wealth advisory services group.
Anyone who has had involvement in insurance, or indeed bought it at a level above that of direct consumer, will be familiar with the terms “hard” and “soft” market. These terms are a way to describe market appetite, capacity to write, and the terms and pricing of insurance. Whilst generally these describe the wider insurance market, often a specific class of business can be affected more than others, almost independently. This is currently the case for Professional Indemnity (PI) and Management Liability, otherwise known as Directors and Officers (D&O) policies.
What are PI and D&O covers?
PI policies cover legal costs, expenses, and any compensation that may be awarded to a client who has a claim against you for providing inadequate advice, service, or designs that cause a client financial loss.
D&O insurance policies offer liability cover for company managers to protect them from claims which may arise from the decisions and actions taken as part of the general activities of the business. Standard policies cover both the personal liability of company directors and the company itself for reimbursement in the event that the company has paid the claim on behalf of the managers.
Both PI and D&O policies can be on an “aggregate” or “any one claim” basis – either the policy limit applies to each individual claim that made during the policy period, or the policy limit is the total amount that insurers will pay out during a policy period, regardless of the number and value of claims made.
Who buys PI and D&O?
PI policies are a useful risk management strategy for businesses. These policies are typically thought of as being needed for Accountants, Solicitors, and Architects, however, they can benefit any company that provides advice or a service to other businesses.
D&O policies usually go hand in hand with Professional Indemnity cover as part of a company’s risk management strategy, but it can also be useful to other businesses, such as Property Managers. Increasingly, independent management companies for specific buildings, as well as larger, commercial outfits, are seeking cover for the activities and decisions made by their directors.
The need for liability coverage in Real Estate and associated asset management has been highlighted over recent years by events such as Grenfell etc and most recently during COVID-19. A landlord’s duty to their tenants in the provision of services and ensuring safe access to spaces is more important than ever for commercial premises as the country returns to work following the easing of lockdown.
The insurance market has been steadily hardening since 2017, following a soft market that had been in effect since 2003. This was, in large part, brought on by the fire at Grenfell Tower and the subsequent enquiry which has highlighted failings in construction, regulation, and testing. The impact of this has been industry-wide but most notably in PI and D&O policies. The hardening market was first felt significantly in 2019 and a further hardening at the start of 2020 has led to huge increases in premiums, insurers limiting their exposure, increasing excesses, and some pulling out of the market entirely. In the last 18 months, 15 markets have stopped writing PI and major insurers are limiting their lines and reducing their appetite.
Clients should expect increased premiums at renewal, regardless of claims activities, and reduced appetite for excess cover layers. This does, however, present a golden opportunity for clients to review their liability needs and potentially non renew extraneous cover that may have been purchased previously when the market was soft and terms were favourable. Clients should look to their brokers to guide them through the review and renewal processes, best present their risk to market, and manage their pricing and capacity expectations.