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UK Professional Indemnity Market Review 2017

UK Professional Indemnity Market Review 2017

Summary

Soft market conditions that have characterized the UK professional indemnity insurance (PII) market in recent years may finally be easing to a stop. The winds of change are starting to blow, with premium rate rises and a reduction in capacity widely anticipated in 2018.

As rates begin to rise, insurers need a clear rating strategy and differentiated propositions in order to avoid losing share in target markets. Close relationships with and understanding of end customers and brokers will be key.Cyber risks cover a broad umbrella of perils, with some elements of overlap with PII. The challenge for insurers and brokers is to develop a clear product and sales strategy that promotes and clarifies the complementary nature of both of these types of cover.

Insurers and brokers alike need to build sleek and convenient online propositions to accommodate the demands of the modern SME, and in particular to capture growth in the sole trader, micro, and miscellaneous professional indemnity sectors. For the latter in particular, digital forms a core element of their own businesses, and the insurance industry needs to meet their expectations.

Key findings include in this report -

  • The UK PII market is estimated to have been worth £1.64bn in 2017, marking growth of only 0.5% due to continued soft rates and the general economic slowdown. Higher rates of growth are anticipated to 2021, although premium rate rises will be tempered by uncertain economic performance.
  • “Traditional” PII is mature and saturated. In addition, the number of businesses in traditional professions declined or stagnated in the year to 2017, falling significantly below overall private sector growth.
  • Much of the growth in underlying demand for PII is occurring among “non-traditional” professions, in particular among SMEs. Our 2017 UK SME Insurance Survey estimates that 55-60% of SMEs have PII - a figure that is slowly rising.
  • Hiscox and AXA are the largest UK PII SME insurers.
The report UK Professional Indemnity Market Review 2017, provides an in-depth analysis of the UK professional indemnity insurance market. It looks at market size as well as changes in premiums, claims, distribution, regulations, and future opportunities. It provides a thorough overview of the market along with a GWP forecast for the coming years.

Companies mentioned in this report: AIG, Zurich, Travelers, QBE, AmTrust, AXA, Lloyd's

Scope
  • The UK professional indemnity market is estimated to have been worth £1.64bn in 2017.
  • Much of the growth in underlying demand is occurring among non-traditional professions, and in particular among SMEs.
  • Hiscox and AXA are the largest UK PII SME insurers.
Reasons to buy
  • Benchmark yourself against the rest of the market.
  • Ensure you remain competitive as new innovations and insurance models begin to enter the market.
  • Adapt your distribution strategy to ensure it is efficient and still meets customer purchasing habits.


1. EXECUTIVE SUMMARY
1.1. Market summary
1.2. Key findings
1.3. Critical success factors
2. MARKET CONTEXT
2.1. Introduction
2.1.1. The PII market
2.2. The size of the PII market has remained stable
2.3. Underlying demand for PII remains saturated among traditional professions, with greater growth in miscellaneous occupations
2.3.1. Regulatory, financial, and competitive pressures have driven consolidation, leading to stagnant or declining business numbers in the legal and financial advice sectors
2.3.2. Consolidation has impacted demand in the small- and medium-sized accountancy sector, while the number of audit firms continues to decline
2.3.3. Growth in the number of architecture and engineering firms has outstripped other areas of traditional PII
2.3.4. Consolidation has put pressure on professional indemnity insurers, while sole traders have required a different approach
2.3.5. While growth in traditional PII policyholder numbers may be slowing, turnover has continued to rise, indicating greater risk exposure for professional indemnity insurers
2.3.6. Much of the growth in underlying demand is occurring among non-traditional professions and SMEs
2.3.7. Technology, management consultancy, and contractors are all areas of growth
2.3.8. PII is believed to be fairly saturated among larger risks, with most new business emerging among SMEs
2.4. Premium rates remained under significant pressure in 2017, but signs of a turnaround are on the cards
2.4.1. Strong competition has placed unsustainable pressure on premium rates in recent years
2.4.2. There have been some indications that the market may be about to turn, with less willingness to reduce rates in 2017
2.4.3. Pockets of rate rises were in evidence in 2017 as a result of sector-specific dynamics
2.5. Profitability has reached unsustainable levels
2.5.1. The major factors causing a drag on profitability have been persistent rate reductions and an increase in claims frequency and severity
2.6. The issues facing the wider market are brought into sharp relief in the solicitor space
2.6.1. Solicitor PII rates have continued to fall, with highly competitive October 2017 renewals
2.6.2. Profitability challenges mean rates are expected to increase in 2018
2.7. Higher growth is expected in the PII market over the next couple of years
2.7.1. Rate increases are expected in many areas of the market in 2018
2.7.2. Demand for PII will continue to grow, but will be countered by the economic slowdown
2.7.3. UK PII GWP will show healthier growth in 2018 and beyond
2.7.4. While predictions for future economic performance are fraught with uncertainty, there are some concerning indications for the PII market
2.7.5. Sectoral issues could also impact the future growth of the overall market
2.8. Cyber remains a key emerging issue
2.8.1. Cyber-related PII claims continue to grow
2.8.2. Silent cyber risks are a focus for the PRA, although insurers feel clear about coverage
2.8.3. Duplication of cover and clarity on sales messages remains an important issue
3. PROFESSIONAL INDEMNITY INSURANCE AND SMES
3.1. Introduction
3.2. Just under a third of SMEs providing advice do not hold PII
3.3. Having purchased professional indemnity cover, 10% of SMEs find it difficult to understand
3.4. Brokers remain the most popular channel for purchasing PII, but other channels are snapping at their heels
3.5. The internet is the favored platform for SMEs buying PII
3.6. Over half of SMEs with PII could be described as price sensitive
3.7. The majority of SMEs with cyber cover also have PII
4. COMPETITION
4.1. Introduction
4.1.1. AIG and Zurich were the leading company market PII insurers in 2015
4.1.2. Insurers have withdrawn from certain sectors in recent years, with signs of a capacity contraction meaning more such announcements are likely
4.1.3. Travelers, QBE, and AmTrust lead the way in solicitors PII
4.2. AXA and Hiscox fight it out as SMEs’ most selected insurer for professional indemnity cover
4.3. Hiscox was the favored insurer for PII placement among brokers in 2017
5. APPENDIX
5.1. Abbreviations and acronyms
5.2. Definitions
5.2.1. SMEs
5.3. Methodology
5.3.1. Primary and secondary research
5.3.2. GlobalData’s 2017 UK Commercial Broker Survey
5.3.3. GlobalData’s 2017 UK SME Insurance Survey
5.4. Bibliography
5.5. Further reading
List of Tables
Table 1: UK PII GWP (£m), 2013-17e
Table 2: Number of businesses by size in key traditional professional indemnity professions, 2013-17
Table 3: UK PII GWP (£m) and growth (%), 2013-21f
List of Figures
Figure 1: UK PII GWP has grown slowly since 2013
Figure 2: Growth in the number of employers within traditional PII professions has generally not kept pace with the wider economy
Figure 3: With the exception of financial advice, growth in the number of sole traders within traditional PII professions typically outpaced the wider economy until the start of 2017
Figure 4: Since 2013 average turnover has increased notably faster among traditional PII profession employers than among private sector employers
Figure 5: Tech and management consultancy businesses are growing faster than the private sector as a whole
Figure 6: Premium rate rises will counter slower economic performance and lead to higher rates of growth for UK PII GWP
Figure 7: PII penetration generally rises along with company size
Figure 8: The majority of SMEs providing advice without PII do not think they need it
Figure 9: Small enterprises find PII hardest to understand
Figure 10: Brokers are the most popular channel among SMEs for purchasing PII
Figure 11: While loyalty is high, scrutiny of provider is greatest among larger businesses
Figure 12: Penetration of cyber insurance rises in line with business size
Figure 13: Hiscox and AXA are the UK's largest SME professional indemnity insurers
Figure 14: Hiscox and Lloyd's are SMEs’ favored professional indemnity insurers

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