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Consulting Matters Protecting your business
What is happening in the professional indemnity insurance market for engineers? In this article BRIC provide you with some insight into the background of the current market, how the insurance industry has reacted, the impact upon your professional indemnity (PI) insurance and what you may do to secure the best outcome for your own insurance. How did this arise? The current state of the insurance market for engineers has been many years in the making. After repeated reductions in premiums over the years the claims have finally come home to roost. The basic equation is simple – there is insufficient premium being generated to cover claims. A large proportion of PI for engineers is placed into Lloyd’s of London (Lloyd’s). For the last two years, the Lloyd’s market has suffered very significant underwriting losses totalling billions of dollars. Lloyd’s is a market place made up of numerous underwriting syndicates each of who are an insurer. Lloyd’s is the overriding market regulator fiercely protective of the Lloyd’s reputation and profitability. As part of their remediation plan, they have forced each syndicate to review their unprofitable portfolios which in turn has resulted in many syndicates withdrawing from PI insurance in Australia completely. Also, they have limited the amount of premium each syndicate is approved to underwrite. The impact of this has seen increased premiums for existing businesses. This in turn means the total limit for each syndicate is reached faster and therefore fewer businesses are able to secure insurance within these limits. This reduction in supply from Lloyd’s has the knock-on effect with local Australian insurers also examining their own premium income limits and reacting accordingly. What is the availability of PI insurance today? The PI insurance market for engineers today remains tight. As mentioned above several Lloyd’s underwriters have ceased offering insurance for engineers, and more specifically, structural/civil engineers.
BRIC do have close relationships with various markets around the world, however they are seeing a tightening and withdrawal of supply in every market. PI insurance is still available to engineers, but it is extremely important that you approach this market in a strategic manner. Seeking quotes for your renewal from many different brokers is only going to lessen your chance of success. You need to select a specialist broker to help you navigate through this limited market. What is the effect on cover and premiums? After the past fifteen years of highly competitive insurance premiums the loss history of engineers has been widely recognised as significant and the premium historically collected inadequate. Whilst visiting London recently, it became clear that not only were insurers wary of the engineering profession but also, they were particularly not attracted to any PI insurance coming out of Australia. As a result, not only are premiums increasing but cover is reducing through a tightening of numerous issues such as: • Limits are now becoming inclusive of Defence Costs and Expenses as opposed to being in addition; • The amount of cover – i.e. the limits of liability being offered are reducing, where once you could easily secure $10M cover that is now $5M; • Exclusions of activities are being introduced – such as flammable cladding; • High rise business activities are now more closely examined; and • Excesses are increasing. Your profession is being forced to adjust to a new environment which must result in higher fees being collected to fund these increased insurance premiums and tighter work practices to secure ongoing insurance. Whilst Lloyd’s is not the only market for engineer’s PI it is indicative of the entire market.
How can you secure the best outcome for your renewal? BRIC had significant success during the last hard insurance market in the early 2000s and developed tailored strategies that assisted its clients navigate through those difficult times. Such strategies are still relevant today and include: •R eturn your paperwork to your broker as early as possible. Keep in mind that most insurers will be reluctant to negotiate premiums more than 30 days before expiry. Sending your paperwork to them three days before expiry will mean you will have difficulties securing renewal; •S tick with your broker if they have specialist expertise and manage PI insurance for many engineers. Now is not the time to be seeking quotes from multiple brokers. If you do, it will be detrimental to your success; If you are the only engineer your broker looks after – ring us! •D etail your risk management strategies and dust off those risk management manuals. You will need to demonstrate you actively follow your risk management strategies; •N ow is not the time for expanding your range of activities – stick to your core competencies. Chris Bovill BRIC Should you continue to experience difficulties in securing the required professional indemnity insurance and are not already in discussion with us, please call 1800 077 933. To the extent that any of the above content constitutes advice, it is general advice without reference to your needs or objectives and therefore cannot be relied upon. Before acting on the above information you should obtain advice specific to your needs. Chris Bovill is the founder and Managing Director of Bovill Risk & Insurance Consultants Pty Ltd (BRIC) and has been arranging professional indemnity insurance for engineers since 1994. BRIC are specialist professional indemnity insurance brokers who have arranged PI insurance for thousands of engineers.