UK Professional Indemnity Insurance 2009

Introduction

This report provides an unrivalled analysis of the UK professional indemnity insurance market. It discusses the relative performance of the main professions and assesses the profitability and claims experience of the whole market. The research also includes an in-depth analysis of the distribution and competitive landscape and forecasts the market size to 2013.

Scope

*Data on the size, structure and profitability of the professional indemnity insurance market in the UK.

*Insight into the different channels and platforms of distributing professional indemnity insurance products.

*Analysis of the total premiums and market share for the largest professional indemnity insurance groups.

*A discussion of the main factors affecting the market in the future along with forecasts of market size to 2013.

Highlights

As a compulsory product for a number of trades, professional indemnity has enjoyed a substantial degree of product penetration among businesses in the UK. Compulsory purchase covers major established sectors as well as newer trades such as claims management companies, which first were required to have professional indemnity cover in July 2008.

Lloyd's market players have been adept at catering to the growing miscellaneous sector, which covers a wide variety of risks ranging from IT consultants to claims management companies. Many insurers that Datamonitor contacted reported that this market was still a profitable one in which to write, growing in policy volume.

Reasons to Purchase

*Gain an understanding of the key drivers of the professional indemnity market in 2008 and 2009.

*Benchmark your premium income against that of your competitors and understand the drivers of growth in their businesses.

*Prepare for the future development of the market in terms of competitors, major issues and market size.


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The market grew in 2008 due to higher premium rates and robust fee income in 2007 2
The market was valued at £1.4 billion in 2008 2
Company fee income remained elevated into 2008, increasing premium income as well 2
Total professional indemnity business in the Lloyd's market is estimated to have declined in 2008 2
The market gross loss ratio rose to 90.6% in 2008 which ensured the market made a loss overall 3
Overall commercial insurance distribution is concentrated in the broker channel 3
Independent insurance intermediaries of all types retained their leading market share in 2008 3
Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs 3
Marsh has the highest penetration of the top firms in the legal professional indemnity market 3
Leading professional indemnity insurers are split between the company and Lloyd's market 4
QBE is the market leader for UK professional indemnity with both a company and Lloyd's market business 4
RSA's UK professional indemnity book is one of the largest in the market 5
Travelers increased its market share in 2008 as premium income grew 5
Most of the top professional indemnity insurers saw their gross loss ratios deteriorate in 2008 5
The professional indemnity market is forecast to be worth £1.9 billion in 2013 5
The recession and over capacity in the market will depress premium income growth in 2009 and 2010 5
Table of Contents 6
Table of figures 7
Table of tables 8
Market Context 9
Introduction 9
The market grew in 2008 due to higher premium rates and robust fee income in 2007 9
The market was valued at £1.4 billion in 2008 9
Premium rate inflation for some sectors was a major driver behind market growth 10
High product penetration and new business has driven market growth 11
Company fee income remained elevated into 2008, increasing premium income as well 11
The Lloyd's market also writes a substantial, though declining amount of UK PI business 12
Total professional indemnity business in the Lloyd's market is estimated to have declined in 2008 12
Excluding the US, the Lloyd's market focuses on underwriting for the legal professions and the misc sector 13
Market profitability has declined due to rising claims costs 15
The market gross loss ratio rose to 90.6% in 2008 which ensured the market made a loss overall 15
Claims frequency has increased for several professions hit by the recession 16
Claims inflation has not been a significant factor driving up claims costs in the market 18
The recession has had a negative impact on key sectors of the professional indemnity market 18
Solicitors' professional indemnity has seen many key underwriters exit the smaller end of the market 18
Rate increases of approximately 15% are anticipated for the solicitors' market 18
The solicitors' ARP accounted for a record proportion of the market in 2009/10 20
Many in the industry have called for the scrapping of the single renewal date 20
Some firms are pooling their risks, which may help as insurers have withdrawn from the smaller end of the market 20
The surveying and valuation industry has been hit by the falling property market 20
The broker sector has been hit by a number of claims, resulting in higher premium rates 21
Brokers may benefit from proposed law commission changes 21
The accounting market has remained soft and relatively untouched by the fallout from the recession 21
Auditors of small business have obtained limited clarification on their liability 22
Distribution Dynamics 23
Introduction 23
Overall commercial insurance distribution is concentrated in the broker channel 23
Independent insurance intermediaries of all types retained their leading market share in 2008 23
Direct players account for a small but important portion of the commercial general insurance market 23
Corporate partnerships have maintained only a small presence in the commercial insurance market 24
Banks and building societies distribute negligible amounts of commercial general insurance 24
Commercial liability insurance is considered to be the least at risk from the direct channel 26
A wide range of brokers have achieved significant market share among the largest professional and consultancy firms 27
An internet proposition could gain ground with SMEs 28
Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs 28
Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs 29
Professional indemnity is relatively common among SMEs 30
SMEs are fairly open to internet arrangement of their employers' liability cover 31
High levels of retention go along with high levels of satisfaction 32
SMEs are generally happy with their insurance provider 32
SMEs tend to prefer longstanding relationships with their providers, making an initial pitch critical 33
A large proportion of SMEs are unlikely to switch to a new provider 34
More SMEs considered a change of provider in 2009 than in 2008 34
A variety of companies, from different industries, believe they will change their provider over the next year 35
SMEs that use the internet to arrange their insurance are the most likely to search out a new provider 36
Marsh has the highest penetration of the top firms in the legal professional indemnity market 37
Competitive Dynamics 39
Introduction 39
New capacity in the market has kept conditions competitive 39
Allianz has developed its professional indemnity team with new talent 39
Tobell Insurance Services Group has set up an underwriting agency to cover professional indemnity 39
Broker Bar Professions is expanding in the professional indemnity market 39
St. Mary Underwriting has brought new capacity to the solicitors' market 39
DUAL Corporate Risks launched new professional indemnity products for the UK market 40
THB and insurer CNA have agreed a delegated underwriting authority for professional indemnity cover for SMEs 40
Giles' underwriting agency Ink launched a professional indemnity insurance product for SMEs 40
XL has entered the primary UK solicitors' market 40
Hannover Re has extended capacity to the solicitors market in 2009 40
RSA and AIG continue to be leaders in the company market for professional indemnity 41
RSA's UK professional indemnity book is one of the largest in the UK market 41
AIG's market share is estimated to have been 7.1% in 2008 41
Travelers, Markel, Hiscox and Zurich were among the few top insurers which increased GWP in 2008 41
Travelers increased its market share in 2008 as premium income grew 41
Markel, through Markel UK, is very active in the UK professional indemnity market 41
Zurich writes a significant range of professional indemnity businesses in the UK 42
Hiscox expanded its footprint in the UK market as premium income rose 42
Many insurers in the top 10 have reduced their exposure to what remains, broadly, a soft market 42
French insurer SCOR reduced its exposure to the UK professional indemnity market 42
Aviva pulled back from the UK professional indemnity market in 2008 42
ACE was estimated to have a market share of 4.3% in 2008 43
Brit Insurance is a long standing player in the professional indemnity market 43
A number of Lloyd's syndicates have been active in the market recently 45
Lloyd's players wrote a declining though still substantial amount of PI in 2008 45
QBE is the market leader for UK professional indemnity with both a company and Lloyd's market business 45
Max at Lloyd's Limited is a new name for an established professional indemnity underwriter 46
Amlin's UK professional indemnity book amounted to £18.3m in 2008 46
Pembroke has been active in the UK market 46
Novae maintains a presence in the UK professional indemnity market though it also operates abroad 46
Gross claims ratios for the largest professional indemnity players increased sharply in 2008 47
Most of the top professional indemnity insurers saw their gross loss ratios deteriorate in 2008 47
Hiscox had the lowest gross claims ratio of all the top 10 players in 2008 47
Future Decoded 49
Introduction 49
The professional indemnity market is forecast to be worth £1.9 billion in 2013 49
The recession and over capacity in the market will depress premium income growth in 2009 and 2010 49
The market is forecast to contract in 2009 before growing to a high of £1.9 billion 50
APPENDIX 53
Definitions 53
Premium income measures 53
Earned premiums 53
Gross premium 53
Net premium 53
Written premiums 53
Distribution 53
Direct 53
Other company agents 53
Utilities/retailers/affinity groups 53
Company staff 53
Banks/building societies 53
Definitions of general terms 53
Channel 53
Platform 54
Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages) 54
Methodology 54
Commercial Insurance Broker Survey-March 2009 54
Datamonitor's SME Insurance Survey Q2 2009 55
Competitor estimates 56
Professional indemnity market size 57
Further reading 57
Ask the analyst 57
Datamonitor consulting 57
Disclaimer 58
List of Tables
Table 1: UK Professional indemnity GWP and growth rates, 2004-08 10
Table 2: Lloyd's market professional indemnity business, 2004-08e (£m) 13
Table 3: Estimated composition of Lloyd's market's non-US exposure, 2008e 15
Table 4: Professional negligence claims and originating proceedings issued in London by nature of proceedings, 2004-08 17
Table 5: UK solicitors professional indemnity insurance market GWP and market share, 2001-08 19
Table 6: Market share of the distribution channels in the commercial general market, 1999-2008 (%) 26
Table 7: Broker market share among the top UK consulting & professional services companies, 2009 28
Table 8: Q: "How long have you been with your current insurance provider?" 34
Table 9: Q: "Do you think you will change your commercial insurance provider in the next 12 months?" 35
Table 10: Top 10 professional indemnity company market insurers GWP and market share, 2007-08 45
Table 11: Top 10 UK competitors by gross loss ratio, 2004-08 (%) 48
Table 12: Key variables affecting professional indemnity insurance, 2009-13f 50
Table 13: Forecast of UK professional indemnity GWP, 2004-13f 52
Table 14: What banding does your company fall into in terms of general insurance premium income turnover? 54
Table 15: Q: "What business sector are you involved in?" 55
Table 16: Q: "How large is your company in terms of number of employees?" 56
Table 17: Q: "How large is your company in terms of turnover?" 56
List of Figures
Figure 1: The top legal firms in the UK primarily buy their professional indemnity insurance from a handful of brokers 4
Figure 2: Mixed premium rates and higher historic turnover resulted in an increase in GWP in 2008 10
Figure 3: Lower GDP will lead to lower fee income for many professionals trading throughout the recession 12
Figure 4: Lloyd's market professional indemnity business has steadily declined 13
Figure 5: The estimated composition of the Lloyd's market's non-US exposure was heavily weighted towards the legal and miscellaneous professions 14
Figure 6: The gross loss ratio for the market is now considerably above its long term average of 75.1% 16
Figure 7: The number of professional negligence claims going to court more than doubled in 2008, mainly due to an increase of claims against solicitors 17
Figure 8: The solicitors insurance market has begun growing again as premium rates have increased 19
Figure 9: National brokers witnessed a significant increase in their share of the UK commercial insurance market in 2008 25
Figure 10: Commercial motor is considered to be at most risk from the direct channel 27
Figure 11: Brokers have the highest penetration among medium-sized firms 29
Figure 12: Micro SMEs are most comfortable with arranging their cover over the telephone 30
Figure 13: Professional indemnity has a comparatively high product penetration 31
Figure 14: SMEs show the greatest willingness to purchase public and employers' liability insurance online 32
Figure 15: Satisfaction levels in the market remain high 33
Figure 16: Very few SMEs have changed their provider in the last two years 34
Figure 17: Companies in the education sector are the most likely to seek out a new quote in the next 12 months 36
Figure 18: Clients which arrange their insurance through the internet are the most likely to search for another provider 37
Figure 19: The top legal firms in the UK primarily buy their professional indemnity insurance from a handful of brokers 38
Figure 20: There is little variation in the size of company market players for UK risks in the professional indemnity market 44
Figure 21: Few insurers lowered their claims ratios in 2008 as claims costs rose 47
Figure 22: Growth in premium income will strengthen as premium rates and the economy grow 51

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List of Tables
Table 1: UK Professional indemnity GWP and growth rates, 2004-08 10
Table 2: Lloyd's market professional indemnity business, 2004-08e (£m) 13
Table 3: Estimated composition of Lloyd's market's non-US exposure, 2008e 15
Table 4: Professional negligence claims and originating proceedings issued in London by nature of proceedings, 2004-08 17
Table 5: UK solicitors professional indemnity insurance market GWP and market share, 2001-08 19
Table 6: Market share of the distribution channels in the commercial general market, 1999-2008 (%) 26
Table 7: Broker market share among the top UK consulting & professional services companies, 2009 28
Table 8: Q: "How long have you been with your current insurance provider?" 34
Table 9: Q: "Do you think you will change your commercial insurance provider in the next 12 months?" 35
Table 10: Top 10 professional indemnity company market insurers GWP and market share, 2007-08 45
Table 11: Top 10 UK competitors by gross loss ratio, 2004-08 (%) 48
Table 12: Key variables affecting professional indemnity insurance, 2009-13f 50
Table 13: Forecast of UK professional indemnity GWP, 2004-13f 52
Table 14: What banding does your company fall into in terms of general insurance premium income turnover? 54
Table 15: Q: "What business sector are you involved in?" 55
Table 16: Q: "How large is your company in terms of number of employees?" 56
Table 17: Q: "How large is your company in terms of turnover?" 56

List of Figures
Figure 1: The top legal firms in the UK primarily buy their professional indemnity insurance from a handful of brokers 4
Figure 2: Mixed premium rates and higher historic turnover resulted in an increase in GWP in 2008 10
Figure 3: Lower GDP will lead to lower fee income for many professionals trading throughout the recession 12
Figure 4: Lloyd's market professional indemnity business has steadily declined 13
Figure 5: The estimated composition of the Lloyd's market's non-US exposure was heavily weighted towards the legal and miscellaneous professions 14
Figure 6: The gross loss ratio for the market is now considerably above its long term average of 75.1% 16
Figure 7: The number of professional negligence claims going to court more than doubled in 2008, mainly due to an increase of claims against solicitors 17
Figure 8: The solicitors insurance market has begun growing again as premium rates have increased 19
Figure 9: National brokers witnessed a significant increase in their share of the UK commercial insurance market in 2008 25
Figure 10: Commercial motor is considered to be at most risk from the direct channel 27
Figure 11: Brokers have the highest penetration among medium-sized firms 29
Figure 12: Micro SMEs are most comfortable with arranging their cover over the telephone 30
Figure 13: Professional indemnity has a comparatively high product penetration 31
Figure 14: SMEs show the greatest willingness to purchase public and employers' liability insurance online 32
Figure 15: Satisfaction levels in the market remain high 33
Figure 16: Very few SMEs have changed their provider in the last two years 34
Figure 17: Companies in the education sector are the most likely to seek out a new quote in the next 12 months 36
Figure 18: Clients which arrange their insurance through the internet are the most likely to search for another provider 37
Figure 19: The top legal firms in the UK primarily buy their professional indemnity insurance from a handful of brokers 38
Figure 20: There is little variation in the size of company market players for UK risks in the professional indemnity market 44
Figure 21: Few insurers lowered their claims ratios in 2008 as claims costs rose 47
Figure 22: Growth in premium income will strengthen as premium rates and the economy grow 51
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