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Brooklyn Underwriting has a wary eye on how different industries are navigating post-COVID risks in terms of professional indemnity – and offers the energy, insight and experience to provide valuable support

MANY BUSINESSES are testing the waters of the post-pandemic economy, with some even diving into new ventures, but it’s important to be fully aware of the risks that may lie beneath the surface when it comes to professional indemnity exposure. Two senior underwriters in Brooklyn Underwriting’s financial lines division are flagging this dynamic as a potential cause for concern in the market. “We’re seeing businesses diversify after COVID-19 lockdowns, resulting in the emergence of new risk exposures,” says senior underwriter for professional risks Lee Bamford.

Brooklyn Underwriting’s approach to business is underpinned by the values and strengths it shares with AXA XL – it operates with honesty and integrity for the benefit of its customers. Brooklyn became part of AXA XL in 2016. It drives excellence in its multiple-award-winning product suite, including cyber, IT, liability insurance, property, management liability, professional indemnity and crisis response/security risk. Its strong ties with AXA XL mean Brooklyn can also connect its clients to experienced AXA XL underwriters to utilise their expertise, global reach and financial security, should there be a need.

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Year-on-year growth in PI premiums

FY18

“We’ve observed well-meaning insureds expanding prematurely, triggering a chain of events that they weren’t prepared for, which has ultimately led to a claim”

Bridget Dainer, Brooklyn Underwriting

The pandemic caused significant disruption across a range of industries in Australia, and its ebbing revealed a somewhat different business landscape, not to mention new rules in some areas. While firms may have a vague notion of the need to adapt, preparing well means tapping expert advice before jumping in. “Industries undergoing significant change and where legislation and regulations are tightening down are probably those that need the most assistance in navigating the changes successfully,” says senior underwriter for financial lines Bridget Dainer. “Also, businesses that might be pivoting into areas and activities where they lack experience also face elevated risk exposure. We’ve observed well-meaning insureds expanding prematurely, triggering a chain of events that they weren’t prepared for, which has ultimately led to a claim.”

While there is no denying that PI was storm-tossed by COVID, it was also a learning experience that made some parts of the market stronger. “After an initial period of considerable disruption, we’ve gained valuable insights, resulting in a more accommodating market stance,” Dainer says. According to Finity’s annual state of the industry Optima report, in FY22 the wider financial lines class demonstrated profitability on a reported basis in terms of net combined

operating ratio for the first time in many years. Within the class, PI loss ratios have gradually improved overall. “After multiple years of remediation there are signs of stabilisation,” Bamford says. But it’s a complex picture with some areas doing better than others. “It’s important to acknowledge that certain industry segments characterised by higher claims frequencies continue to experience pressure.” There are also concerns around inflation affecting claims costs, which are also impacted by such factors as litigation funders becoming more active in Australia. One sector that has outperformed for PI has been small to medium-sized businesses, which are less likely to swim between the flags in search of new sources of income. SME investment in areas outside of firms’ traditional operations appears to be on the rise. The latest Fifth Quadrant SME Sentiment Tracker shows that 18% of SMEs requiring finance over the next three months plan to use it to fund growth in new markets. Bamford calls the current trend of businesses diversifying operations a “significant challenge”. “We need to ensure that clients are aware of their disclosure responsibilities in fields where they may be less experienced,” she says.

In an area like PI, which can cover everything from the construction industry to cyber risks, staying abreast of industry trends is key. “We need to keep up with the changes in our clients’ business and be aware of the macro factors which are affecting them, such as changes in legislation, market movements and claims trends,” Dainer says. This means attending regular industry events, seminars and webinars for brokers and underwriters. An intimate knowledge of the client base is also important to strike the right balance between volume and quality of work. “To ensure adequate cover, firstly this comes down to the broker and underwriter having a deep understanding of the insureds, their individual risk profile and industry,” Dainer says. “The key step to building an understanding often comes down to a fully completed proposal form.” Bamford says the primary challenge is making sure clients aren’t unknowingly getting into dangerous waters, and the solution largely lies in providing education and clarity. “We need to ensure that there is clear communication between insurers and brokers, ensuring transparent messaging so that clients fully comprehend the intentions behind policy coverage.” The good news is that with the pandemic in the rearview mirror, there are greater modes of communication available, and the bonds between underwriters and brokers are easier to forge.

“As underwriters, we need to have our finger on the pulse with the changing landscape in which our clients operate”

Lee Bamford, Brooklyn Underwriting

Brooklyn has an advantage in that it’s a subsidiary of global insurer AXA XL. “[This provides] us with financial stability and confidence for our brokers and insureds,” Dainer says. “We work closely with our counterparts at AXA XL to find the best solutions for our clients and to develop emerging talent.” Sometimes local firms become part of a faceless multinational that tries to apply a one-size-fits-all approach – but not Brooklyn, which exemplifies the best of both worlds. “We have the advantages of a carrier with global capabilities, whilst having a local presence and in-house claims support,” Bamford says. “Yet, as a division of AXA XL, we have the ability to pivot easily, enabling us to respond with agility to market shifts.” Being backed by a global player also ensures a broad and diverse appetite with multiple products tailored to different industries. “At Brooklyn we’re able to assist by continuing to offer coverage to high-risk industries. There are very few markets available for financial planners and accountants, some forms of engineers and construction type risks,” Bamford says.

Fish being directed. Professional Indemnity.

A market on the mend, but with a fragmented landscape

Significant capacity with global backing

Published 11 Sept 2023

10%

FY19

5-10%

FY20

10%

FY21

10%

FY22

5-10%

Source: APRA National Claims and Policies Database, Finity analysis

Note: Excludes medical indemnity

Source: Cordell Construction Cost Index

Jul–Sep 2021

Rate of change in national construction costs by quarter

+3.8%

Oct–Dec 2021

Jan–Mar 2022

Apr–Jun 2022

Jul–Sep 2022

Oct–Dec 2022

Jan–Mar 2023

Apr–Jun 2023

+1.1%

+2.4%

+4.7%

+1.9%

+0.9%

+0.7%

Making sure coverage is fit for purpose

Looking ahead, certain parts of the market are likely to continue facing challenges while others may stabilise. Escalating construction costs have driven up remediation expenses in the construction sector, and this issue may continue for as long as the economy experiences sticky inflation. Healthcare organisations have also experienced higher claims activity due to post-COVID workloads and a more litigious claims environment. “Many societal changes are flowing into our clients’ risk profiles and the risks that they face,” Bamford says. “This includes the increasing use of artificial intelligence, shifts in the economy, and an increase in focus on uninsurable risks.” While the tides will certainly continue to shift as the economy feels its way forward in the post-COVID era, Brooklyn is committed to reading the waters and keeping a lookout for hidden shoals. “As underwriters, we need to have our finger on the pulse with the changing landscape in which our clients operate,” Bamford says.

Calmer waters or more choppiness?

Mitigation of risks is an important means of reducing PI exposure, and some are unsure where to turn for reliable and up-to-date advice. “Industry bodies are a great way to keep up with best practice and the changes that may affect our insureds,” Dainer says. “They usually offer regular training opportunities, and this can be useful and a cost-effective way of ensuring that all staff and directors keep current with changes within their industry.” Internal training is also essential. “Having an action plan, delivering the plan and keeping records is an important action which every insured with employees should consider,” she says. “Lastly, creating and upholding internal policies that not only align with legislation but also demonstrate the best practice you want your employees to adhere to is crucial.” Brooklyn provides claims examples to highlight current and emerging risks. Other ways to minimise problems that might lead to a claim include appointing a dedicated person to oversee related policies, conducting annual reviews to ensure relevance, maintaining records, and occasionally seeking outside advice.

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“It’s good to see underwriters getting back out and rebuilding relationships with brokers. I hope to see this continue and grow,” Bamford says. Brooklyn isn’t taking anything for granted in the current market. “We’ve adopted a proactive approach to monitoring our portfolio performance, assessing claims experience and identifying emerging trends,” Dainer says. Staying on the front foot is key, she adds. “Our commitment to engaging with and listening to the needs of our brokers and

insureds has enabled us to strike a balance where possible. These are the factors that we feel have helped us manage pressure and deliver favourable outcomes.”

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