The Professional Indemnity (PI) market has undergone 2-3 years of substantial change in terms of pricing, availability of capacity and coverage. The construction related professions have felt this perhaps more than most with substantial premium increases and coverage restrictions, particularly in relation to cladding and fire safety related claims.

Whilst we hope that the dramatic corrections to what were previously deemed unsustainable levels of premium have now been undertaken, we have seen a continuation of rate increases in the first part of 2021. Typically, these have been in the region of 20% but varying substantially depending on the individual insurer’s business plan as well as, the insured’s risk profile and loss record. However, we have recently seen very early signs that there could be some “green shoots” of recovery.

We are seeing some Managing General Agents (MGAs) armed with new capacity beginning to cause disruption, in addition to some other established insurers returning to the fray. We have also seen some significant movement of personnel across the market with senior underwriters and entire teams moving to new insurers. Logic would suggest that this should come with refreshed appetite for new business, whereas the emphasis in recent years has been firmly on the consolidation and rectification of existing portfolios.

With so much focus having been placed on “rate” (premium: fee income), it will be interesting to see how insurers react where so many professional services firms will have seen a meaningful reduction in revenues in the past year. One might expect that premiums would reduce in the same way that they increased in line with revenues in previous years. However, incumbent insurers in particular, will argue that one year of reduced revenue does not materially affect the exposure given the “long tail” nature of PI risk.

New insurers may choose to take a more flexible view to facilitate more aggressive pricing which will hopefully increase the competitive tension that has been so absent in the past two to three years.

Any potential improvement to market conditions will nevertheless be tempered by the macro-economic environment and we may need to wait a little longer for any sustained softening or even flattening in the market cycle.

Gallagher’s Professional Risks team continues to help its clients navigate what has been an extremely volatile market place in recent years. Often this will entail candid and at times difficult conversations over what can realistically be achieved. However, we continue to work with our clients to obtain the most favourable outcomes possible.

We are able to cater for practices of all sizes; from sole practitioners as well as placing some of the largest and most complex global consultancies.

Silent Cyber Cover

In July 2019, Lloyd’s of London issued a Market Bulletin (Ref Y5258) which sought to address ambiguity under all insurance policies about the provision of cyber coverage.

After consultation, Lloyd’s believed that the market should adopt best practice by affirmatively including or excluding cyber coverage under all policies. Professional Indemnity (PI) Insurance was addressed up in the third phase of the process being implemented by Lloyd’s starting on 1st January 2021.

Most PI wordings are underwritten on a “Civil Liability” basis meaning that they will cover any losses for which the insured is legally liable arising from the provision of their professional services, unless specifically excluded under the policy. Whilst the primary intent is to cover claims for acts of negligence, cover could be interpreted to extend to cyber related losses even where this is not the intent of the policy and there is no negligence on the part of the insured and where that loss should actually be covered under a more specific cyber insurance policy.

As a result, we are seeing most insurers exclude cyber related losses from PI policies. The specific language of these exclusions varies from insurer to insurer although the International Underwriting Association of London (IUA) have issued their own Cyber and Data Protection Law endorsement in order to bring some uniformity across the market.

The key aspects of the exclusion remove coverage for claims, including any fines and penalties arising out of a “Cyber Act” (i.e hacking, malware or social engineering), interruption to or unavailability of systems.

The implications of any such exclusion are potentially broad ranging for a professional services firm and particularly pertinent in the current remote working environment. While Insureds may instinctively focus on the relevance of these exclusions to their own losses from cyber events (such as IT security and forensic costs following an attack), it is also important to consider in the context of any liability that Insureds owe to their own client.

It is therefore crucial to carefully assess the need to purchase a separate Cyber policy or the adequacy of any existing cyber insurance policy terms and limits.

Whilst these gaps in cover cannot always be avoided, we have a specialist Cyber Liability team that can dovetail Cyber policies with other policies to mitigate against these risks.