The professional indemnity (PI) insurance market isn’t expected to recover from market exits and rising costs for another 18 months to two years, according to Oscar Martinis, senior partner at insurance brokerage adviser MKM Partners.
While PI insurance is mandatory for licensed entities in Australia, attaining it has never been more difficult after a host of providers including DUAL Australia, Vero and Axis pulled their offering in the last few years. Most recently, a number of Lloyds syndicates withdrew from the PI sector in late 2019.
The reason for the exodus is clear: “Insurers are making a loss,” Martinis says. “Losses, losses and more losses.”
Martinis delivered a similar message on stage at the 2019 Professional Planner Best Practice Forum, where he said the market was the most difficult it’s been “for five or six years”, with prices increasing “10 to 20 per cent” in the preceding 12 months. “We’re in a supply squeeze,’ Martinis told the audience of advisers and practice managers.
The Lloyds withdrawal has compounded the dire state of the industry, he says.
“Three Lloyds syndicates that were providing capacity for Australian financial planners have pulled out,” Martinis reveals. “That really leaves only five providers in the market, which makes it tight.”
Given the hardening market, insurers can be selective in terms of the risk they take on because there’s more demand and restricted supply. “Those providers that remain have been either increasing premiums, deciding not to renew, restricting coverage or increasing excess,” he continues.
For licensees and self-licensed practices looking for PI insurance, Martinis says the key to finding decent coverage in this environment is your ability to demonstrate a lower risk profile.
“The most important thing is how good your compliance regime is,” he says. “If you have a good, safe business with no claims history, documented processes and rigorous compliance, you’ll get coverage.”
Martinis reckons the PI market will eventually right itself, but it may take some time.
“The market will soften eventually, without a doubt,” he says. “It’s always been cyclical. I would expect the hard market to continue for another 18 months to two years and then it’ll soften again.”
It may be small comfort, he adds, but other industries are finding professional indemnity insurance even harder to attain. While financial advisers generally pay two per cent of their revenue for PI insurance, property surveyors – for example – pay between five and eight per cent.
“There’s certainly other businesses that are doing it tougher,” he says.