UK Professional Indemnity Insurance 2008

UK Professional Indemnity Insurance 2008

Introduction

Soft market conditions continued to affect business in the UK professional indemnity market in 2007, with low claims volumes allowing competition to remain strong and premium rates to decline. Premiums continued to fall despite new business driving an increase in policy numbers.

Scope

*Estimates of the professional indemnity insurance market size.

*Market share data for the top ten professional indemnity insurers.

*Forecasted scenario for the market until 2012, developed with industry representatives and Datamonitor's in-house expertise

Highlights

An increasing number of brokers have opened regional branches in order to get closer to more remote clients. This is allowing them to gain market share at the expense of those brokers and insurers which are becoming increasingly centralized, and this could effectively lead to de-consolidation in the PI market.

Lloyd's share of GWP continued on its downward trend in 2006, falling by 1.5 percentage points to 33.6%. Since 2002, Lloyd's share of the professional indemnity market has fallen from 56.6% to its current level.

The decline in premium rates was partly offset by growth in the take up of PI in 2007. On average, interviewees estimated that the number of policies-in-force increased by approximately 5-10%. The impetus behind the policy growth is the result of various new professions requiring PI as government regulation and UK society develop.

Reasons to Purchase

*Gain an understanding of the key drivers of the professional indemnity market in 2007

*Understand how the distribution of professional indemenity insurance is evolving

*Develop your business strategy using Datamonitor's unique sector forecast

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Professional indemnity GWP continued to fall in 2007 due to weakening premium rates 2
The professional indemnity market declined by 2.0% between 2006 and 2007 2
Professional indemnity players are looking to the online platform to grow their business 2
The internet has become an increasingly popular method for attracting PI business 2
Lloyd's share of the professional indemnity market continues to be eroded by the company market, although the rate of decline is slowing slightly 2
Lloyd's continues to lose market share in the professional indemnity market 2
The market is expected to harden early in 2009 and GWP will grow strongly 2
A variety of factors are likely to contribute towards GWP growth during the forecast period, however, premium rates are expected to have the greatest impact 2
Table of Contents 4
Table of figures 5
Table of tables 6
Chapter 1: Introduction 7
What is this report about? 7
Who is the target reader? 7
How to use this report 8
Chapter 2: Market Context 9
Introduction 9
Professional indemnity GWP continued to fall in 2007 due to weakening premium rates 9
The professional indemnity market declined by 2.0% between 2006 and 2007 9
Premium rates declined across all areas of professional indemnity, although product penetration increased 10
The 10% decline in premium rates in 2007 was smaller than the fall witnessed in 2006 10
Reduced premiums and fierce competition have left the solicitors' market in a precarious situation 11
New markets are continuing to drive the take up of PI 11
Competition remained fierce despite the market being broadly unprofitable 12
Profitability suffered in 2007, as competitors continued to compete fiercely for business 12
Claims costs have remained at low levels 12
The downturn in the housing market is likely to increase the volume of claims 12
The downturn in housing prices is likely to impact negatively on the market, as mortgage fraud may push up claims in 2008 12
Poor quality guidance on the value of an estate may lead to an increase in claims 12
Two rulings set new precedents in the professional indemnity market, while the Legal Services Act will also shake up the market 13
No indemnity payout for partners that condoned "dishonest" dealings in Zurich v Karim case 13
High Court ruling may raise future PI payouts 13
The Legal Services Bill should simplify the process for lower-value loss claims 13
Insurers remain reluctant to offer midwives professional indemnity insurance, despite proposed law changes 13
Chapter 3: Distribution 15
Introduction 15
Brokers continued to dominate the distribution of commercial insurance 15
National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers 15
The direct channel increased its share of commercial insurance GWP by 1% in 2006 15
Affinity groups remain a small channel for the distribution of commercial insurance 15
Banks and building societies continue to play a small role in the distribution of commercial insurance 16
Professional indemnity distribution is likewise dominated by the broker model 18
Professional indemnity insurance is predominantly distributed through the broker channel 18
Marsh remains the largest distributor of solicitors' and lawyers' professional indemnity 18
Brokers with a regional presence are strong in the professional indemnity insurance market 19
Professional indemnity players are looking to the online platform to grow their business 20
The internet has become an increasingly popular method for attracting PI business 20
Liberty began offering a PI website facility for brokers 21
Exclusivity deals and MGA arrangements are blurring the boundaries between insurers and brokers 21
RSA intends to make PI available through three channels 22
A significant proportion of SMEs are open to purchasing their insurance via the internet or phone 22
Many SMEs considering a telephone purchase do so because of its convenience 22
However, many SMEs remain unwilling to purchase their insurance over the telephone 23
Over a third of SMEs would consider making a purchase online 24
Less than half of SMEs would be willing to purchase their PI cover online 25
Chapter 4: Competitive Dynamics 27
Introduction 27
Underwriters are looking at ways to enter the market or expand their existing professional indemnity offering 27
AIG launched a regional assault on the solicitors' PI market 27
AXA aims to build up professional indemnity share among small businesses 27
Allianz Commercial looks to set up new PI team 27
Dual expands PI offering 27
RSA relaunched its PI offering in summer 2007 28
Despite exiting from solicitors' professional indemnity, Hiscox has been active within the professional indemnity market 28
Hiscox agreed to provide capacity for the PI business of Collegiate Underwriting and took a large stake in Allison & Partners 28
Lloyd's share of the professional indemnity market continues to be eroded by the company market, although the rate of decline is slowing slightly 28
Lloyd's continues to lose market share in the professional indemnity market 28
New Hampshire remained dominant in the professional indemnity market 30
Average loss ratios deteriorated between 2006 and 2007 32
Chapter 5: The Future Decoded 36
Introduction 36
The market is expected to harden early in 2009 and GWP will grow strongly 36
A variety of factors are likely to contribute towards GWP growth during the forecast period, however, premium rates are expected to have the greatest impact 36
GWP is expected to experience strong growth from 2009 until the end of the forecast period 37
APPENDIX 40
Definitions 40
Brokers 40
National brokers 40
Other intermediaries & brokers 40
Chain brokers & telebrokers 40
Employers' liability 40
Professional indemnity 40
Directors' and officers' liability 40
Earned premiums 40
GWP 41
NWP 41
Methodology 41
Primary and secondary research 41
Data on the Lloyd's market 41
SynThesys Non-Life database (GEP/GWP) 41
Datamonitor's SME Insurance Survey Q1 2008 41
Competitor estimates 43
Professional indemnity market size 44
Further reading 44
Ask the analyst 45
Datamonitor consulting 45
Disclaimer 45
List of Tables
Table 1: Estimated professional indemnity premium income, 2003-07 10
Table 2: Market share of distribution channels in the commercial general insurance market, 2003-06 18
Table 3: Lloyd's premium income and share of the UK professional indemnity market, 2002-06 29
Table 4: The top 10 professional indemnity players by market share, 2002-07 (%) 31
Table 5: The top 10 professional indemnity players by income, 2002-07 32
Table 6: Gross loss ratios for the top 10 professional indemnity insurers, 2002-07 34
Table 7: Gross claims incurred by the top 10 professional indemnity insurers, 2002-07 35
Table 8: Key variables affecting the professional indemnity insurance market, 2007-2012f 37
Table 9: Forecast GWP for professional indemnity insurance, 2002-12f 39
Table 10: Q: "What business sector are you involved in?" 42
Table 11: Q: "How large is your company in terms of number of employees?" 42
Table 12: Q: "How large is your company in terms of turnover?" 43
List of Figures
Figure 1: In 2007, the professional indemnity market declined for the third year in a row 10
Figure 2: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP 17
Figure 3: Marsh has the largest share of professional indemnity distribution in the legal channel 19
Figure 4: Most SMEs hold an employers' liability and public liability policy 20
Figure 5: Many insurers and brokers now quote and sell professional indemnity online 21
Figure 6: The convenience factor appeals to many SMEs prepared to purchase insurance over the phone 23
Figure 7: A significant proportion of SMEs would not consider a telephone purchase because they simply prefer face-to-face 24
Figure 8: A significant proportion of SMEs would consider a purchase online in a bid to save money 25
Figure 9: SMEs show a greater inclination to purchase employers' liability and public liability via the telephone and internet 26
Figure 10: Lloyd's share of the market fell every year between 2002 and 2006 29
Figure 11: In 2007, New Hampshire was the largest company player in professional indemnity insurance 30
Figure 12: In 2007, there was a large variance between the loss ratios for the top 10 professional indemnity providers, with an average loss ratio of 70.8% 33
Figure 13: GWP is set to record moderate growth in 2008 before rates turn in 2009 and GWP experiences robust growth 38