UK Professional Indemnity Market Review 2018

Table of Contents

1. EXECUTIVE SUMMARY 1

1.1. Market summary 1

1.2. Key findings 1

1.3. Critical success factors 1

2. MARKET CONTEXT 7

2.1. Introduction 7

2.2. Growth in the PII market was driven by the construction, solicitors’ excess layer, and IFA sectors in 2018 7

2.3. Growth in underlying demand for PII remains muted among traditional professions, with slowing growth in ‘miscellaneous’ occupations 9

2.3.1. Growth in the number of potential policyholders in ‘traditional’ professions remains muted 9

2.3.2. Consolidation continues to shape the face of traditional professions 10

2.3.3. Traditional profession turnover has continued to rise, indicating greater risk exposure for PI insurers 11

2.3.4. Over the last five years much of the growth in underlying demand has occurred among non-traditional professions and SMEs 12

2.3.5. Miscellaneous PII is believed to be increasingly saturated, not just among larger risks but also for SMEs 14

2.4. 2018 saw the start of a more significant withdrawal of capacity and a shift in premium rates in certain sectors 14

2.4.1. The early indications of change that were starting to emerge in 2017 gathered significant pace in H2 2018 14

2.4.2. Lloyd’s performance management initiatives have galvanized a reduction in capacity 15

2.4.3. Premium rates rose, particularly in the construction, excess-layer solicitors PII, and IFA sectors 15

2.4.4. Spotlight on solicitors 16

2.4.5. Spotlight on construction 17

2.4.6. Spotlight on IFAs 18

2.5. Profitability has reached unsustainable levels 18

2.5.1. Lloyd’s market figures illustrate the extent of the PI market’s losses 18

2.5.2. Persistent rate reductions and increased claims frequency and severity have caused the profitability crunch 19

2.6. Higher growth is expected in the PII market over the next couple of years 20

2.6.1. Rate increases are expected in many areas of the market in 2019 20

2.6.2. UK PII GWP will show healthier growth in 2019 and beyond 21

2.6.3. A disorderly Brexit could have concerning implications for the PII market 22

2.6.4. Sectoral issues will also impact the future growth of the overall market 23

3. PROFESSIONAL INDEMNITY INSURANCE AND SMES 25

3.1. Introduction 25

3.2. Over a third of SMEs providing advice do not hold professional indemnity insurance 25

3.3. Brokers and organizations such as trade associations remain popular channels for purchasing PII 27

3.4. The Internet is the most favored platform for SMEs buying PII 28

3.5. Human interaction remains important for small companies 29

3.6. Over half of SMEs with PII could be described as price-sensitive 30

3.7. Cyber risks remain a key issue, with clear cross-selling opportunities among small and medium companies that offer professional advice 32

3.7.1. Cyber-related PII risks continue to grow 32

3.7.2. The majority of SMEs with cyber cover also have PII 32

3.7.3. There are cross-selling opportunities among small and medium companies that offer professional advice 32

4. COMPETITION 34

4.1. Introduction 34

4.2. The leading PI insurers differ by sector 34

4.3. After a raft of withdrawals in 2018 and increased market scrutiny on PII profitability, Lloyd’s’ share of the market will shrink 34

4.4. Travelers, QBE, and AmTrust remain the leading solicitor PII insurers 35

4.5. AXA, Aviva, and Hiscox fight it out for SME professional indemnity cover 37

4.5.1. Hiscox has a well-established direct proposition, attracting sole traders 37

4.5.2. AXA is the market leader across other SME segments and has expanded its mid-market appetite 37

4.5.3. Aviva appears to have growing PI appetite 39

4.5.4. Allianz and Zurich have more share among mid to large SMEs 39

4.6. Hiscox remains the most favored insurer for PII placement among brokers in 2018 39

5. APPENDIX 41

5.1. Abbreviations and acronyms 41

5.2. Definitions 41

5.2.1. SMEs 41

5.3. Supplementary data 42

5.4. Methodology 43

5.4.1. Primary and secondary research 43

5.4.2. GlobalData’s 2018 UK Commercial Broker Survey 43

5.4.3. GlobalData’s 2018 UK SME Insurance Survey 43

5.5. Bibliography 44

5.6. Further reading 45

List of Tables

Table 1: Growth in business numbers within legal, accounting, architectural & engineering by size of business, 2014-18 11

Table 2: Average turnover by profession, 2014-18 12

Table 3: UK PII GWP, 2014-22f 22

Table 4: Top five insurers selected by SMEs purchasing professional indemnity insurance, by share of responses, 2018 38

Table 5: Turnover by size of business in key 'traditional' PI professions, 2014-18 42

List of Figures

Figure 1: UK PII GWP has grown slowly since 2015, with more notable growth achieved in 2018 8

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 9

Figure 3: Consolidation continues to shape the traditional professions 10

Figure 4: Tech and management consultancy businesses continue to grow faster than the private sector as a whole 13

Figure 5: Larger law firms saw premium rate increases in 2017-18 16

Figure 6: The average solicitor PII premium has declined since 2013, while average turnover has increased 19

Figure 7: Premium rate rises will counter slower economic performance and lead to higher growth rates for PII GWP 21

Figure 8: PII penetration rises along with company size 26

Figure 9: The majority of SMEs providing advice without PII do not think they need it 27

Figure 10: SMEs use a variety of channels when purchasing PII 28

Figure 11: Human interaction is important for small companies buying PII 30

Figure 12: Levels of shopping around for PI decrease with size 31

Figure 13: 11-12% of small and medium companies that provide professional advice have cyber cover but not PII 33

Figure 14: There have been a raft of Lloyd’s withdrawals in H2 2018 35

Figure 15: AXA, Aviva, and Hiscox are the UK's largest SME PI insurers 38

Figure 16: Hiscox, Markel, and HCC were the most favored PI insurers in GlobalData's 2018 broker survey 40