INSURANCE: one high-value claim could adversely impact market for firms of all sizes


Just one high-value claim could see professional indemnity insurance (PII) premiums rocket, a leading insurance broker has warned.



Sandra Neilson-Moore, managing director of the finance and professional services practice at top broker Marsh, acknowledged the PII market remained 'soft' but underlined there has not been a big claim since the early 1990s.



'All it would take is one £300 million claim and insurers would have to either stop writing it or double or triple their premiums,' she said.



Ahead of the annual PII renewal deadline of 1 October, Ms Neilson-Moore echoed the majority of observers warning of an increase in claims if there is an economic downturn. She said insurers were already asking firms if they do US sub-prime market work, but was unconvinced the UK would be hit by related actions.



She also noted that smaller firms posed a 'different kind of risk' and could easily produce a 'frequency of claims that could blow premiums'. Insurers underwriting this market often had to rely on indicators like the Lexcel mark alone, making it 'difficult for insurers to pick the best ones to write'.



Angus Cameron, executive director for professional risks with leading broker Aon, said there will always be a mix of good and bad among all firms, but added that smaller ones may not have the formalised risk management procedures that are commonplace in larger firms.



'Small firms have to prove to the market that they are better than the average. They should bring out all the good points in the application form about how they manage the firm,' he said.



Christine Bohner, head of Zurich Professional, said the market remained very competitive for small firms but had stabilised at the middle and top end. 'It is a sign of a maturing market... large firms understand the value of good insurers, good brokers and of long-term relationships. They are not looking to simply save a few pounds,' she said.



Ms Bohner also cautioned firms to be wary of selecting cover on price alone: 'Every year, someone new comes in and cuts rates. A year or two later they leave because they are not making any money... The concern is that, if there is a bad claim or the economy takes a sudden downturn, will they be there to pay claims?'



Anita Rice