2013 has proved, even more than previous years, to be a tale of two renewals.
Top 150 firms with good claims records and low exposure to conveyancing continue to be highly sought after by insurers, and have been obtaining highly competitive renewal terms.
Smaller firms, and those with a more mixed claims profile, and/or those with higher levels of conveyancing have experienced a very different renewal. Those that have suffered most have been the 1-4 partner high street firms, many of whom thought they had renewed with Berliner - prior to them being the latest unrated insurer to forcibly exit the market.
This was also the renewal where XL exited completely from the 1-3 partners arena, and AIG announced blanket increases on large swathes of its book of business, and was the latest insurer to stop insuring practices with more than 25% conveyancing exposure.
The late exit of Berliner - which had theortetically underwritten in the region of £20m premium (some in two-year deals) exaccerbated an already hardening market, and firms that submitted their proposal forms late on in the renewal found themselves in a waiting game for terms from those insurers still prepared to quote. The evidence appears to be that firms that secured terms early on fared much better than those who waited until the last minute.
VARIABLE RENEWAL DATE
There is little evidence to date, that many firms/insurers have acted upon the option now available to select an alternative renewal date. Those that did, tended to do so for practical reasons relating to their Financial Year end.
ENTRANTS TO THE MARKET
Despite the late emergence of Chancery PII, and contrary to many predictions following the end of the Assigned Risks Pool, there were no new entrants of note to the market. Indeed, overall we have seen a reduction in market appetite amongst the remaining insurers.
Chancery PII is underwriting on behalf of existing insurers in the market and thus is unlikely to represent any new market capacity. Informal indications, from firms we have spoken to, are that few few were able to obtain terms from the online quoting engine - again reflecting the fact that the majority of insurers are proving highly selective about the risks that they wish to insure in this market.
Historically, there have been a number of new entrants to the market year on year, who have helped keep the average premiums low. Those insurers who have been in the market longer term have experienced the impact of high numbers and values of claims since 2007, along with the fall in investment income - and as a result, we are beginning to see a hardening of the market - other than for the larger, 'low risk' firms. Those firms that historically had obtained 'below-market' terms are now having to face up to a new reality that more closely reflects their risk profile as perceived by insurers.
FINANCIAL STABILITY
As predicted, the financial stability of firms has been a significant factor in determining whether insurers will quote for their business. The withdrawl of the Assigned Risks Pool has been balanced by the risk that the incumbent insurer will be obliged to carry the 6-year run-off risk for any firm that cannot obtain terms, or otherwise goes into administration.
CLAIMS & RISK MANAGEMENT
If you are a firm that has obtained unattractive terms, or has experienced difficulty obtaining terms from more than one insurer, the message for next year is clear. Now is the time to start working on your risk profile,not just for next renewal, but for the longer term too. Insurers look at claims records over ten years - and consider the potential exposure a firm represents to them.
It is imperative that firms take a long hard look at their systems and procedures - and will be in a position to demonstrate that rigorous action has been taken that designs out risk insofar as practical. For firms that do undertake 'high risk' work - they have an even greater burden of proof to satisfy. Lockton have a dedicated Risk Management Service, alongside the online guidance and tools offered via this website.
If you want to discuss your requirements further, contact your Account Manager in the first instance.
FIRMS STILL STRUGGLING TO OBTAIN COVER
We expect there to be many firms using the automatic 30 days extended indemnity period as the last minute scrabble for cover by 1st October will inevitably leave many firms still searching the market for cover after that date.
Lockton is well position to assist -and firms that are still seeking terms should contact our Solicitors helpline on 0845 050 1471, or email us, including a copy of your completed proposal form(s) if possible.