Every which way but loose for PI
Cross currents and multidirectionality in professional indemnity markets only increase the value of good advice, especially in an uncertain economy
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PROFESSIONAL INDEMNITY markets are being pulled in many directions at once. Economic uncertainty and rising claims costs are continuing to put upward pressure on premiums for some industries, and many businesses are unwilling to swallow them. While the rate of premium increase has slowed a little compared to recent years, capacity has been constrained as some insurers pare back on parts of their portfolios.
“This has been due to a combination of reasons, including economic conditions, heightened claims and additional risk exposures. These factors have collectively contributed to premium increases and, in some cases, a reduction in coverage,” says senior underwriter Achila Gunasekera at Brooklyn Underwriting.
The net result is a thinner market overall with total gross written
Higher claims activity in parts of the economy are rendering underwriting some sectors more challenging.
Professions such as insurance broking, electrical, environmental and construction engineers, management consultants and the real estate agency business have seen higher premium increases in recent years, APRA analysis shows. Other areas seeing more risk due to persistent inflation and weak consumer sentiment include manufacturing, mining, renewables and fintechs, according to a recent Aon market report.
“We have also observed claims arising out of the accounting sector, particularly associated with taxation and audit-related work,” says claims manager Maya Lazarus, also at Brooklyn Underwriting.
“As the complexity of financial regulations and tax laws continues to evolve, the accounting profession faces an increased likelihood of legal challenges.”
Gunasekera is paying particular attention to the construction, engineering and architecture sectors. “Monitoring developments in these sectors will be crucial for informed decision-making and risk management,” she says.
Construction firms under pressure can be difficult to educate about risk and whether they are performing adequate due diligence on the projects they bid for.
“Making sure the client is reading and understanding the contract that they are signing and not just signing for the sake of winning contracts [is tough],” says Stranaghan, especially when they are reliant on brokers to ensure they are adequately covered.
Clients are also trying multiple routes when they find their initial advances for cover thwarted.
Stranaghan is seeing the same risks come across her desk more often. “[They] are shopping with more brokers, trying to find the full limit at a feasible price, which essentially means we are seeing the same risk via more brokers, more than once,” she says.
Another area to watch in the PI space is structural engineering and civil works, including anything related to rail. While looking to cut corners is perhaps a problem most apparent in these economically stressed areas, the role of insurers in making sure all types of clients have the right coverage cannot be understated.
“As an industry, we need to remain diligent in helping our clients understand the importance of having and maintaining a PI policy, as insurance is often the first thing clients consider as dispensable during times of financial pressure,” says Gunasekera.
2003
Average written PI premium in Australia by underwriting year
Stranaghan is also wary of construction, a sector that is simultaneously seeing two-decade lows in loans for new builds but near-record highs in dwellings still under construction due to the stuffed pipeline from the increased volume of starts during the pandemic when rates were low.
“It’s still an area being hit hard, and I don’t anticipate it changing soon. Apart from the battles with supply chain, we are seeing contract-driven limits get higher and higher,” says Stranaghan.
She adds that insureds are being required to carry $20 million PI limits as standard unless they have the tools to be able to bargain with the principal, something that often isn’t feasible.
There is a tinge of desperation in the construction sector with insolvencies rising quickly. ASIC insolvency statistics show a jump of 71% in construction insolvencies in the year to June 2023 from the prior 12-month period. With three months to go in the year to June 2024, current trends suggest insolvencies will end up being even higher this fiscal year.
When a builder goes into liquidation, developers often try to recoup costs by trying to attribute responsibility to various professionals, including engineers and certifiers. “Whilst these claims may have limited merit, the costs of defending them are on the rise,” says Gunasekera.
Lazarus has spotted a trend around defective fire protection and also water drainage or mould issues that she anticipates will “persist and potentially increase in 2024”.
Recent reforms to building regulations are also widening the scope of insureds’ potential exposure, she adds.
High Street Underwriting Agency (HSUA) navigates the complexity of the Australian insurance market to deliver tailored solutions for businesses and individuals. With a team of experienced underwriters and a commitment to exceptional service, it forges strong relationships with brokers to ensure comprehensive protection and peace of mind. Dedicated to responsiveness and expertise, HSUA consistently delivers innovative and dependable insurance solutions, empowering clients to thrive in a world of uncertainty.
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Brooklyn Underwriting provides a breadth of customised, market-specific insurance solutions to Australian businesses in the mid-market and SME space for property, casualty, financial lines, marine and other niche specialty lines. Brooklyn’s approach to business is underpinned by the values and strengths it shares with AXA XL, operating with honesty and integrity for the benefit of their customers. Brooklyn drives excellence in its multiple award-winning product suite, including but not limited to cyber, IT, liability insurance, property, management liability, miscellaneous professional indemnity and crisis response and security risk. Brooklyn can also connect its clients to experienced AXA XL underwriters.
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The tougher market means underwriters have to adapt, but Brooklyn and HSUA are meeting the challenges. As a complex risk, PI rarely has a straightforward solution, and the current market is bringing
“As an industry, we need to remain diligent in helping our clients understand the importance of having and maintaining a PI policy”
Achila Gunasekera,
Brooklyn Underwriting
In Partnership with
There is no shortage of potential pitfalls for the market in the year ahead. Continued high interest rates will squeeze profits for clients and increase pressure to push back on premium levels. Cybersecurity and natural catastrophe are growing risks for most sectors. Social changes in work styles are causing fallout for firms with interests in commercial property, and more regulation could open the door to new or higher indemnities.
Gunasekera is predicting that the entry of new capacity into the market, including through agencies, will have an impact on market dynamics – but has a word of warning.
“I would also say to brokers and buyers that it’s important to consider questions beyond simply price, including: Is my client securing the adequate coverage? Who is handling the claims – will my client get good service? And even, will this agency or insurer be around to pay claims in the future?”
The PI market has seen a number of insurers come and go over the years, players that may have offered attractive deals but turned out to be not in the game for the long haul.
“This underscores the importance of assessing the stability and reliability of insurance providers,” says Gunasekera.
Perhaps these players were also partly scared off by the complexities involved. The multidirectionality of PI markets and the intimate knowledge required of each sector is enough to make your head spin, but this only increases the value of good advice, especially in an uncertain economy.
“It’s an area that constantly changes and can be a bit up and down at times,” says Stranaghan.
“[Clients] are shopping with more brokers, trying to find the full limit at a feasible price, which essentially means we are seeing the same risk via more brokers, more than once”
Katie Stranaghan,
High Street Underwriting
premiums slipping and a price tug-of-war between risk-prone and safer sectors causing the average premium price to rise. This suggests the market will continue to struggle to find a happy equilibrium amid protracted economic stress.
“We now have these risks coming through with relatively low turnovers, and either the insured is not willing to carry the higher premiums being offered or our markets are not willing to quote due to the low turnovers,” says Katie Stranaghan, portfolio manager for financial lines and accident and health at High Street Underwriting Agency.
Call it the PI definition of a rock and a hard place (no pun intended).
Finity analysis estimates that PI was one of only two classes of insurance to experience negative GWP growth in Australia in FY23 at an albeit small -5%. This overall shrinkage comes against a background of average premium rate increases of 10%.
It wasn’t supposed to be this conflicted.
Many had been hoping for a period of stabilisation after a long, slow recovery in average premiums from post-GFC lows around the $2,000 mark in the 2016 underwriting year. While the APRA National Claims and Policy Database data shows premiums reaching the $3,300 level in 2021, the subsequent drop leaves the outlook murky.
Industry experts
Maya Lazarus
Brooklyn Underwriting
Achila Gunasekera
Brooklyn Underwriting
Katie Stranaghan
High Street Underwriting Agency
Industry experts
With a decade of experience in the insurance industry, Katie Stranaghan is a seasoned financial lines underwriter at High Street Underwriting Agency. Her love of direct collaboration with brokers and solving complex risks has given her a standout reputation in the industry – she was recognised as one of Insurance Business Australia’s Young Guns in 2020. Stranaghan also enjoys the opportunity to liaise with HSUA’s London counterparts.
High Street Underwriting Agency
Katie Stranaghan
Achila Gunasekera has worked in the insurance industry for over 20 years in a variety of roles, including marine underwriting, broking, operations and compliance and, over the past five years, financial Lines underwriting. This has given her a well-rounded understanding of the market and industry. In her current role, Gunasekera looks after a mixed portfolio of professional indemnity products, such as for engineers and architects.
Brooklyn Underwriting
Achila Gunasekera
Maya Lazarus is a qualified solicitor with over 15 years in the insurance industry. She joined AXA XL in March 2016 as a senior financial lines claims specialist IFL and was appointed Brooklyn Underwriting claims manager in April 2020. Her passion for mid-market and SME claims and her service-focused approach drew her to Brooklyn Underwriting, where she has been focusing on claims and the claims experience.
Brooklyn Underwriting
Maya Lazarus
Maya Lazarus
Brooklyn Underwriting
Achila Gunasekera
Brooklyn Underwriting
Katie Stranaghan
High Street Underwriting Agency
Industry experts
With a decade of experience in the insurance industry, Katie Stranaghan is a seasoned financial lines underwriter at High Street Underwriting Agency. Her love of direct collaboration with brokers and solving complex risks has given her a standout reputation in the industry – she was recognised as one of Insurance Business Australia’s Young Guns in 2020. Stranaghan also enjoys the opportunity to liaise with HSUA’s London counterparts.
High Street Underwriting Agency
Katie Stranaghan
Achila Gunasekera has worked in the insurance industry for over 20 years in a variety of roles, including marine underwriting, broking, operations and compliance and, over the past five years, financial Lines underwriting. This has given her a well-rounded understanding of the market and industry. In her current role, Gunasekera looks after a mixed portfolio of professional indemnity products, such as for engineers and architects.
Brooklyn Underwriting
Achila Gunasekera
Maya Lazarus is a qualified solicitor with over 15 years in the insurance industry. She joined AXA XL in March 2016 as a senior financial lines claims specialist IFL and was appointed Brooklyn Underwriting claims manager in April 2020. Her passion for mid-market and SME claims and her service-focused approach drew her to Brooklyn Underwriting, where she has been focusing on claims and the claims experience.
Brooklyn Underwriting
Maya Lazarus
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Katie Stranaghan
High Street Underwriting Agency
Achila Gunasekera
Brooklyn Underwriting
Maya Lazarus
Brooklyn Underwriting
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MFAA head credit adviser, Finsure Finance and Insurance
Mark HarChristopher Leeon
Maya Lazarus is a qualified solicitor with over 15 years in the insurance industry. She joined AXA XL in March 2016 as a senior financial lines claims specialist IFL and was appointed Brooklyn Underwriting claims manager in April 2020. Her passion for mid-market and SME claims and her service-focused approach drew her to Brooklyn Underwriting, where she has been focusing on claims and the claims experience.
Brooklyn Underwriting
Maya Lazarus
Achila Gunasekera has worked in the insurance industry for over 20 years in a variety of roles, including marine underwriting, broking, operations and compliance and, over the past five years, financial lines underwriting. This has given her a well-rounded understanding of the market and industry. In her current role, Gunasekera looks after a mixed portfolio of professional indemnity products, such as for engineers and architects.
Brooklyn Underwriting
Achila Gunasekera
With a decade of experience in the insurance industry, Katie Stranaghan is a seasoned financial lines underwriter at High Street Underwriting Agency. Her love of direct collaboration with brokers and solving complex risks has given her a standout reputation in the industry – she was recognised by Insurance Business as one of Australia’s Young Guns in the industry in 2020. Stranaghan also enjoys the opportunity to liaise with HSUA’s London counterparts.
High Street Underwriting Agency
Katie Stranaghan
The outlook for PI
Published 25 Mar 2024
“As the complexity of financial regulations and tax laws continues to evolve, the accounting profession faces an increased likelihood of legal challenges”
Maya Lazarus,
Brooklyn Underwriting
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
0
1,000
2,000
3,000
4,000
5,000
Source: APRA National Claims and Policies Database overview, January 2003 to December 2022
Source: APRA NCPD Analysis report, Finity analysis
0%
100%
200%
300%
400%
600%
Average PI premium growth by profession, 2015–21
Brokers
Property managers
Management consultants
Electrical
Agents
Construction
Industrial consultants
Environ-mental
Valuers
Financial institutions
Financial planners
500%
Economic or regulatory pressures adding to challenges
Keeping clients informed of the importance of PI coverage
“As insurers, we can be instrumental in alleviating this challenge. We pride ourselves on actively engaging with our brokers to ensure they understand and can share how our PI policies work, sharing claims examples, and outlining key risk assessment criteria, to empower brokers to effectively convey the value of PI coverage to their clients.”
Stranaghan agrees that keeping clients up to speed can be hard. “[One of the main challenges is] trying to educate clients about the danger of lapsing PI policies,” she says.
more cases out of the ‘vanilla’ area and into the bespoke realm – specialisation and intimate knowledge of the client are key strengths in such an environment.
“More often than not [risks] don’t ‘fit within the box’ and therefore are referred outside of online streamlined portals. PI is more of a conversation between brokers, clients and underwriters to understand the full extent of the insured’s activities to try to ensure that the risk is understood correctly,” says Stranaghan.
HSUA has been able to source cover for more outside-the-box risks due to its relationships within the Lloyd’s market, one recent example being a labour-hire and recruitment agency providing workers to the civil and rail industry.
“We were able to obtain a $2 million limit for a broker/client that was unable to source cover elsewhere,” says Stranaghan.
Flexibility of approach and a strong customer service ethic is key. “We aim to always have someone on the phone ready to take calls and give same-day responses to brokers. Even if it's referred to London, we make sure we are notifying the brokers that we have received it and it’s being looked at.”
In a market that is changing quickly, such nimbleness makes a big difference.
“Our agility allows us to swifty adapt and make changes to our market approach as needed,” says Gunasekera.
Adapting to the conditions in PI
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Copyright © 2024 KM Business Information Australia Pty Ltd
Contact Us
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Copyright © 2024 KM Business Information Australia Pty Ltd
RSS
Sitemap
Contact us
About us
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People
Contact Us
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Resources
Risk Management
TV
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AU