A further warning regarding PI rates

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There have been some significant changes in the PI market this year. With things shifting so rapidly I wanted to ensure that you are aware of some of the key issues that may affect you and your customers/suppliers..

Some underwriters totally withdrew from this line of business at the beginning of the year. As a direct result of this certain industries, that have been affected by well publicised adverse events, are particularly under pressure. Design and Construction (D&C) is seeing massive increases in premium, coupled with a reduction in limits being offered and restrictions in terms. Likewise the Financial Services (FS) industry, particularly IFAs that carry out pension reviews, are suffering too. 

Underwriters are now offering lesser limits meaning that where a client once had a large indemnity limit with one provider, this limit is having to be divided into a programme. Underwriters are not keen to release terms four or five weeks prior to renewal, preferring to delay confirming terms until as late as possible so they are able to maximise their premium earnings in this hardening market.  

Changes in cover making your contracts void

Not only is there a decrease in the limits of indemnity being offered at renewals, but there is a fundamental change in cover. Some policies were offered and written on the basis of the Limit of Indemnity on an Any One Loss Basis; this has now changed to In The Aggregate.

You may well have contracts that you are already in, and/or commercial warranties you have given that you may no longer be able to satisfy.

Impact on other PI trades

This situation will have a knock on effect into other PI trades simply because Lloyd’s underwriters have an annual limited premium capacity, or stamp, that is pre-approved by Lloyd’s and cannot be exceeded. When these were agreed last year the market was not so bullish and therefore much inflated premiums in D&C and FS will fill this total stamp up more quickly than anticipated. Likewise if a PI underwriter can get a much higher rate of D&C with less total exposure than a lower rated trade, the underwriter may chase the higher rated business.

Article courtesy of Compass London Markets.