UK Professional Indemnity Market Review 2018

UK Professional Indemnity Market Review 2018

Summary

The winds of change gathered pace in 2018, with premium rate rises and significant reductions in Lloyd’s market capacity driving a step-change in H2. Further significant changes are anticipated in 2019 as professional indemnity insurers continue taking steps to address unsustainable levels of unprofitability.

Scope

  • Over the last five years much of the growth in underlying demand has occurred among non-traditional professions and SMEs.
  • Legal services are among the biggest buyers of PII, and, in comparison to other professions, only doctors and dentists have a higher number of insureds.
  • The technology, management consultancy, and freelance sectors can be particularly pinpointed as driving growth in the non-traditional or miscellaneous sectors. Professions impacted by the change in data protection rules through the EU’s General Data Protection Regulation (GDPR), which came into force in May 2018, have reportedly been looking more carefully at the potential benefits of PII and cyber cover.
Reasons to buy
  • Develop your proposition to target growth segments
  • 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.


  • Executive Summary
    • Market summary
    • Key findings
    • Critical success factors
  • Market Context
    • Introduction
    • Growth in the PII market was driven by the construction, solicitors' excess layer, and IFA sectors in 2018
      • Table Figure 1: UK PII GWP has grown slowly since 2015, with more notable growth achieved in 2018
    • Growth in underlying demand for PII remains muted among traditional professions, with slowing growth in `miscellaneous' occupations
      • Growth in the number of potential policyholders in `traditional' professions remains muted
        • Table Figure 2: While growth in the number of employers within traditional PII professions has continued to slow, it has generally not been as affected by the economic slowdown as the private sector
      • Consolidation continues to shape the face of traditional professions
        • Table Figure 3: Consolidation continues to shape the traditional professions
        • Table Growth in business numbers within legal, accounting, architectural & engineering by size of business, 2014-
      • Traditional profession turnover has continued to rise, indicating greater risk exposure for PI insurers
        • Table Average turnover by profession, 2014-18
      • Over the last five years much of the growth in underlying demand has occurred among nontraditional professions and SMEs
        • Table Figure 4: Tech and management consultancy businesses continue to grow faster than the private sector as a whole
      • Miscellaneous PII is believed to be increasingly saturated, not just among larger risks but also for SMEs
    • 2018 saw the start of a more significant withdrawal of capacity and a shift in premium rates in certain sectors
      • The early indications of change that were starting to emerge in 2017 gathered significant pace in H2 2018
      • Lloyd's performance management initiatives have galvanized a reduction in capacity
      • Premium rates rose, particularly in the construction, excess-layer solicitors PII, and IFA sectors
      • Spotlight on solicitors
        • Table Figure 5: Larger law firms saw premium rate increases in 2017-18
      • Spotlight on construction
      • Spotlight on IFAs
    • Profitability has reached unsustainable levels
      • Lloyd's market
      • Persistent rate reductions and increased claims frequency and severity have caused the profitability crunch
        • Table Figure 6: The average solicitor PII premium has declined since 2013, while average turnover has increased
    • Higher growth is expected in the PII market over the next couple of years
      • Rate increases are expected in many areas of the market in 2019
      • UK PII GWP will show healthier growth in 2019 and beyond
        • Table Figure 7: Premium rate rises will counter slower economic performance and lead to higher growth rates for PII GWP
        • Table UK PII GWP, 2014-22f
      • A disorderly Brexit could have concerning implications for the PII market
      • Sectoral issues will also impact the future growth of the overall market
  • Professional Indemnity Insurance and SMEs
    • Introduction
    • Over a third of SMEs providing advice do not hold professional indemnity insurance
      • Table Figure 8: PII penetration rises along with company size
      • Table Figure 9: The majority of SMEs providing advice without PII do not think they need it
    • Brokers and organizations such as trade associations remain popular channels for purchasing PII
      • Table Figure 10: SMEs use a variety of channels when purchasing PII
    • The Internet is the most favored platform for SMEs buying PII
    • Human interaction remains important for small companies
      • Table Figure 11: Human interaction is important for small companies buying PII
    • Over half of SMEs with PII could be described as price-sensitive
      • Table Figure 12: Levels of shopping around for PI decrease with size
    • Cyber risks remain a key issue, with clear cross-selling opportunities among small and medium companies that offer professional advice
      • Cyber-related PII risks continue to grow
      • The majority of SMEs with cyber cover also have PII
      • There are cross-selling opportunities among small and medium companies that offer professional advice
        • Table Figure 13: 11-12% of small and medium companies that provide professional advice have cyber cover but not PII
  • Competition
    • Introduction
    • The leading PI insurers differ by sector
    • After a raft of withdrawals in 2018 and increased market scrutiny on PII profitability, Lloyd's' share of the market will shrink
      • Table Figure 14: There have been a raft of Lloyd's withdrawals in H2 2018
    • Travelers, QBE, and AmTrust remain the leading solicitor PII insurers
    • AXA, Aviva, and Hiscox fight it out for SME professional indemnity cover
      • Hiscox has a well-established direct proposition, attracting sole traders
      • AXA is the market leader across other SME segments and has expanded its mid-market appetite
        • Table Figure 15: AXA, Aviva, and Hiscox are the UK's largest SME PI insurers
        • Table Top five insurers selected by SMEs purchasing professional indemnity insurance, by share of responses, 2018
      • Aviva appears to have growing PI appetite
      • Allianz and Zurich have more share among mid to large SMEs
    • Hiscox remains the most favored insurer for PII placement among brokers in 2018
      • Table Figure 16: Hiscox, Markel, and HCC were the most favored PI insurers in GlobalData's 2018 broker survey
  • Appendix
    • Abbreviations and acronyms
    • Definitions
      • SMEs
    • Supplementary data
      • Table Turnover by size of business in key 'traditional' PI professions, 2014-18
    • Methodology
      • Primary and secondary research
      • GlobalData's 2018 UK Commercial Broker Survey
      • GlobalData's 2018 UK SME Insurance Survey
    • Bibliography
    • Further reading
    • About GlobalData
      • Table Figure 17: About GlobalData

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