News & Articles

Market update – Professional Indemnity

The following trends and issues present across the following professions/industries:

Construction
Insurer appetite for risks relating to principal and contractor controlled design and construction will turn on the nature of the work being undertaken by the proposer. Commercial and industrial property or risks that involve “non-structural” work and small contract values are favourable.

Residential high rise and major infrastructure projects remain “less preferred”. For Construction professionals- insurers continue to place broad “non-conforming products” and otherwise “fire safety” exclusions on quotations. It is becoming very difficult for construction professionals to comply with obligations imposed on them by Regulators (see here our article “The Building Practitioners Act – Implications for Construction Professionals and their insurers in an already hardening insurance market") and otherwise principals (see our article “The impact of narrowing cover in the hardening insurance market: construction professionals & claims made policies").

It would appear that the professional indemnity market, which has carried significant losses across recent building defect claims, has said enough is enough. This suggests those responsible for the systemic losses (due to poor construction practice, cost cutting, failure to impose adequate safety measures on sites and inadequate quality in overseas product used on projects) are to be held accountable. The cost of cover for building professionals is becoming cost prohibitive and imposing more onerous obligations on the insurance market will force experts out of business as insurers withdraw.

There is little (and in some cases no) appetite for geotechnical, structural, offshore marine or process engineers. This is also the case for certifiers, building surveyors, development managers (who have an interest in the property or the fund subject of the development) or remediation consultants.

Financial Services Licensees

There is bad news for all financial services licensees who advise or have investors classified as “retail”. Insurer appetite is diminished, little capacity exists, and in some circumstances, cover is unavailable.

Many in the industry put that down to poor management by the Australian Financial Complaints Authority whose processes require licensees to incur significant costs, which, in many circumstances are for responses to vexatious claims. Otherwise, macro stock market and property conditions are driving returns and or losses.

These will turn on the underlying investment: for instance, investors in direct property funds that have underlying industrial assets will have performed better than those who have investments in commercial property. Whilst equities have performed well generally, some have been impacted.

Financial planners have had steady increases between 15-25%, unless they have been subject to claims. The markets remain unchanged from last year: there have not been any new entrants. The withdrawal from particular London MGA’s still continues to affect the class.

There has been an uplift in insurance brokers claims. The allegations are based on failure to advise on scope of cover, failing to record instructions, inadequate inquiries into the risk being placed and misstatement in using online systems.

Property Valuers

It remains that little appetite exists for property valuers. The imposition of restrictive terms by insurers underwriting the profession continues to trend. In that regard, reference is made to exclusions that relate to valuations undertaken for developments.

Firms in the mid-market who have strong risk management and resources to manage matters that gave rise to the systemic claims history of the profession in the past, appear to have no sway on rating or the coverage available to them. We have challenged a number of insurers to produce statistics on recent losses in the industry. None can.

It appears that insurers’ fear for the bursting of a bubble when rating valuers, and have little or no regard to the improvements’ across the profession’s risk profile be they legal defences, economic conditions, more prudent lending practices and imposed internal API risk management.

Firms specialising in particular asset classes, have strong client selection criteria, proper report qualifications and strong peer review processes have in our experience received “roll-over” in the current climate. We understand that smaller firms have in some circumstances received discounts and opine that the mid-size firms – better equipped to manage risk – are not being rewarded properly.

Solicitors

Rating and appetite for solicitor’s top-up (cover in excess of the respective state statutory schemes) will turn on the practice areas of each firm. There continues to be reports of losses on larger transactional work which has caused poor loss experiences. Otherwise, insurers have concerns with cyber risk and social engineering

Last year on excess of loss placements we experienced minimum 25% uplifts and for firms with Lloyd’s syndicate participation, that market sought between 50-100% uplifts. We do not consider the market to be as dramatic this year (uplift of 10% to 15% on clean risks), and we are buoyed by 3 new market entrants who have indicated that they will dedicate capital to the class this year.

Accountants

Claims frequency has continued to remain consistent. The issues with superannuation funds – as against tax agents over allocating and also seeing failure to maintain adequate documents and providing comprehensive. Insurers fear however that regulators may look to review disclosures by business and advice provided to business by their accountants over the course of COVID-19 stimulus packages.

Medical malpractice and allied health professionals

We are seeing insurers insist on applying absolute exclusions that apply in connection with the administering of any COVID-19 vaccine. Whilst there is no intention for professional indemnity insurance to cover losses as a result of the efficacy or effects of any vaccine, professionals would expect their insurers to cover them for failing to properly administer the vaccine.

Healthcare tribunals are receiving increasing complaints against practitioners. Most do not result in compensatory orders, however there are costs being incurred largely funded by insurers. A new secondary class action is on foot regarding the upselling of patients to sign up to additional tests whilst undertaking IVF. Medical malpractice insurers will watch how this develops.

Technology

There is broad market appetite for technology risk. Products are broadly worded and pricing is competitive. We are however experiencing a range of claims being made against firms establishing or licensing their IT services throughout America. We have had more enquiries in recent times seeking coverage for intellectual property insurance.

Miscellaneous professions
The insurance market has significant capacity and appetite for miscellaneous professional indemnity insurance. The major pitfall we see concerns insureds underwritten via online transacting systems. These systems can be manipulated so quotations falling outside the insurers appetite - that would ordinarily be “referred” to underwriters for quotations – are made to fall within the parameters of the system. For instance, by varying the covered professional services from “development management” to “project management” (two very separate and distinct risks) neither would, in the writer’s opinion, be considered as “miscellaneous”. There are also other more significant considerations in the online wordings. Overall, this leads to illusory coverage being offered to policyholders and ultimately issues of non-disclosure arise in the event of a claim. Reference should be made to the decision in Kotku Bread Pty Ltd v Vero Insurance & Anor [2012] QSC 109. A summary of the implications for brokers may be found in the article “Don’t give insurers a reason to deny your claim: the importance of complying with the duty of disclosure”.