INSURANCE PREMIUM: under-priced rates ‘unsustainable’


Firms should prepare for a harder professional indemnity insurance (PII) market as rates are now so under-priced they are

unsustainable, insurance broker Lockton has warned.



The overall insurance premium pot totalled £204 million in 2007 and, while not dropping as low as the £190 million predicted by some, signals that some insurers are writing at a loss, according to Lockton’s 2007 survey of its clients.



The survey noted only ten of the original 34 qualifying insurers are still active in the market and says new entrants have kept rates down.



‘All the indications are that a market which is under-priced due to the influences of competition and increased capacity cannot be sustained for much longer. Insurers are constantly calling for higher rates, and those higher rates are looking more and more likely.



‘Whether this will happen in 2008 remains to be seen… firms should continue to set the wheels in motion to reduce risk within their practices, as a hardened market is unlikely to be long in the offing.’



All of Lockton’s clients, from sole practitioners to multi-partner City outfits, benefited from rate reductions in 2007, as competition for market share remained fierce. Sole practitioners were most likely to change insurer, with 47% paying less for their insurance and 46% paying more.



More than 80% of partnerships of all sizes paid less.



The report said that insurers underwriting the market at a loss had previously been afforded some protection through investment income derived from holding capital as ‘reserves’ for future losses. However, as claims are generally settled much faster now, on average within approximately three years rather than six years, interest payments on held premium have reduced.



Anita Rice