Insurance Age investigates how brokers can make inroads into the static, soft, and difficult to break into professional liability market.
Insurers are under pressure to remain relevant in the professional liability market where there has been little wholesale change for the past decade and rates in most professions remain stubbornly soft.
Throwing down the gauntlet to the market, Grant Clemence, head of professional and financial lines at QBE, says: “The big question for insurers is how we innovate enough to remain relevant.
“We are still selling the same things we were 10 years ago and hoping everyone comes round to our way of thinking. There are very few industries that you look at that are selling the same things they were 10 years ago.”
But before looking at how and where changes might come, it is worth looking at how things stand at the moment.
There is now an acceptance among both brokers and insurers that a hard market will not simply follow on the heels of the prevailing soft market so long as they simply wait for long enough.
Almost like sitting alone in a restaurant waiting for a date, there comes a point when it becomes clear they are just not going to arrive.
“All of the rules that we used to apply in terms of a hardening just do not seem to apply,” says Tony Loizides, head of broking at Safeonline. So where do the future opportunities lie for brokers and how are insurers looking to innovate their offering?
For anyone but the biggest and most established players, getting in on the biggest risks in the most established professional markets is very difficult. They have essentially been sewn up as Brendan Dawson, managing director at Qdos Broker and Underwriting Services explains: “Most of the broker market is ‘locked’ out of the mid and upper professional liability insurances by informal or formal exclusivity arrangements between the insurers and the international and national brokers.
“This is particularly true of the legal professions. A handful of brokers control most of the legal professions’ negligence and liabilities risks.”
In some regards this is not surprising given the complexity of larger risks and the international aspects that many will have, but it does mean that the majority of brokers need to rely on securing decent volumes because it is so difficult for them to win or retain the biggest premium payers.
In an effort to do just this, Safeonline, like others in the market, is trying to come at clients from a slightly different angle.
“We are developing solutions for lawyers in the network security arena,” says Loizides. “That provides an introduction to a book of lawyers or other professions…
“We are focusing on the exclusivity and the ability to be a market leader in network security, and that is then opening doors for us to make sure that we can look at the professional liabilities. You cannot do one without looking at the other.”
Where brokers are working with smaller clients, the challenge is to try and reduce the cost of administering the policy.
For some, this has driven a move towards developing schemes and Dawson says: “The cost of managing and administering the risk is high, compared to the premium and potential profits available. In this area the brokers and or insurers that have developed specialisms in schemes will have an advantage over your everyday high street broker.”
Technology also has a massive part to play in bringing down costs for medium and smaller professional liability risks and Dawson adds: “There are obvious advantages to those brokers and or insurers that have developed and utilise technology and to some degree commoditised the risks.
“This will and indeed has led to new entrants that can arrange insurance for smaller professional firms at a fraction of the cost of traditional face to face broking methods.”
Where insurers and MGAs can effectively digitise their offering to the smaller end of the market, it will attract brokers to deal with them as they seek to reduce their own costs.
This is a point made by Loizides when he says: “On the SME stuff a lot of MGAs and Lloyd’s syndicates are now issuing their own policies to help them manage costs. When we look at small business we tend to direct it to those places as that cuts cost for us.”
But not everyone has gone down the road towards commoditisation and digitisation and there are some that feel it could ultimately lead to problems.
“We probably have not reaped the full rewards of digitisation,” says Steve Bonnington, managing director of PI at Dual, but this does not worry him.
Instead he comments: “I think what you might see is that there are some people in the SME market that have potentially been hurt by the fact that they prioritised efficiency over the underwriting of the risks themselves.”
Just how problematic commoditisation proves for underwriters remains to be seen, but it will do very little to actually change the risk profile of the underlying business and enable it to better mitigate its exposures going forward.
In that regard, commoditisation might cut costs for all involved, but how much value does it add for policyholders? This is a question that QBE has spent a lot of time considering and it believes the market could do more to help policyholders avoid claims, instead of simply making it cheaper and faster to buy policies.
“I think where the real opportunity is and where QBE is really focused is on what else we can do around the edge,” says Clemence.
“We tend to focus on selling a policy which deals with clearing up the mess after the claim. We really need to start getting much better at dealing with there being fewer claims, offering a better service to help people not to have claims and dealing with other issues like the management time they spend on them.”
This approach will see QBE send out more alerts to policyholders in the coming year and Clemence says the aim is to highlight the hot trends in claims and so help clients avoid losses of their own where possible.
This will have particular benefits in regard to fraud and digital security and will let policyholders get an almost real time feel for what to watch out for.
Understanding what each insurer has to offer when it comes to this type of preventative medicine will be valuable for clients and will help brokers differentiate one carrier from another.
Looking at how such services could play out if pushed into particular professional markets, Dawson says: “Many accountants at the lower end of the market do not have specialist knowledge regarding tax and VAT issues that their clients face.
“It is estimated that more than 50% of professional negligence claims emanate from inappropriate advice or outright wrong advice to their clients. If insurers built in specialist helplines to their insureds as part of their policy then the likelihood of losses would reduce and more than offset the cost of the helpline provision.”
It is difficult to predict whether such initiatives would improve results significantly, whether professional firms would actively turn to their insurers as a source of technical information and whether the cost of implementation would simply be passed straight on to the policyholder.
What seems clearer is the determination to come up with new ways of working in the professional indemnity market because as Clemence concludes: “If you are trying to do the same thing more cheaply or with wider cover then I think you will struggle as there is a wealth of people doing that already.”
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