Q&A: The PI market in 2008

Mark Ramsbottom, managing director of professional indemnity brokers Solicitorassist.com, talks about the 2007 professional indemnity market and gives his thoughts for 2008.

Everybody spoke about reductions in premiums in 2007. Where did the market finish up?

The market figures are constantly changing, but based on Qualifying Insurer submissions to the Solicitors Regulatory Authority this year, market size ended up at just over £200m in premium collected for everyone’s primary layers. Back in the days of the Solicitors Indemnity Fund (SIF), the premiums collected were in the region of £320m, then in 2004, premiums collected were £242m, and in 2006 they were £215m. The market continues to be about price and not much more.

If insurers say they are losing money, why are rates decreasing?

It only takes one or two new insurers with a few million pounds of capacity to cause reductions in solicitors’ professional indemnity premiums. Over the past few years we have seen new insurers enter the market aggressively and grow their book of business to several millions pounds; then either exit or significantly reduce their exposure. One insurer entered the market for two years, collected approximately £4.3m in premium, and is currently looking at losses in the region of £16m. Suffice to say, they no longer write solicitors professional indemnity insurance.

If you are writing a few million pounds of premium with a primary level of indemnity of £2m, it only takes one total loss claim to make you think again about writing this type of insurance.

Irrespective of what you believe, claims costs for all qualifying insurers are increasing, and the terms of the professional indemnity insurance affords insurers few defences and the claims will have to be paid. With the property market starting to squeak, lenders’ claims are increasing. Solicitors involved in conveyancing frauds (whether dishonestly or unwittingly) are notifying increasing numbers of claims.

What advice would you give to Solicitors for 2008?

I think solicitors don’t always differentiate between brokers and insurers. Brokers like Solicitorassist have access to almost every insurer, and can shop the market on your behalf. Some solicitors will send their proposal form to six or seven brokers, which only serves to put insurers off presenting terms. Some insurers won’t quote a solicitor if they receive the proposal from more than two brokers. Other insurers operate on a ‘first come, first served’ basis, but the problem is that if you use too many brokers, your terms could be split across a number of brokers, making it more difficult for brokers to negotiate on your behalf.

Will rates go up or down in 2008?

In 2007 the market was always going to soften. At the heart of the market are the large insurers who have been involved consistently post-SIF since 2000, who have been squeezed in each of the past years by new entrants. The larger insurers undoubtedly want, and need, rates to go up.

The current premiums being charged are probably unsustainable beyond 2008, although providing no insurers exit the market, we may see another small decrease in rates in 2008 before rates harden in 2009.