The loss of AIG from the professional indemnity insurance market will further tighten an already underserved industry, and the loss leading sector may find it difficult to find replacements.
AIG, which holds a significant pool in the industry, will withdraw from the investment management insurance and financial planning professional indemnity markets, ceasing renewals from September.
Jared Timms, senior account manager for insurance broker PNOinsurance, tells Professional Planner the providers left are going to quickly meet their premium thresholds and not be able to take on any more risk.
This means some financial services businesses may have a hard time finding insurance if they are currently with AIG as AIG’s competitors may no longer be able to write any new business.
Underwriting agents are granted “capacity”, Timms says, to underwrite risks and collect premiums to pay claims on behalf of underlying insurers like Llyod’s of London or other mainstream insurers.
Finding new capacity
Timms says there is a significant number of businesses out there that may struggle to obtain coverage in order to comply with their AFSL.
“We’re exploring fresh capacity out of London and we’ve been talking to some markets. There will be new capacity coming on board which doesn’t have anything to do with AIG.”
“Lloyds have improved their underwriting profitability over the last couple of years following a lot of corrective action which means they’re more comfortable underwriting financial services PI again,” Timms says.
Just because AIG will leave doesn’t mean businesses and other underwriting agencies or insures will expect to grow in this space.
The limited underwriters left will have limited capacity available and may have trouble taking on new business, Timms explains. With less supply, prices go up.
“The insurers are still quite cautious around financial services in general because it has generally been a loss-making sector.”
Self-licenced firms with a good track record with their existing insurers should be well positioned to maintain cover but should still expect cost of premiums to be affected.
Financial planners have not had any new insurers enter the space for some time, so a further insurer exiting is not welcome news and conservative estimates suggest the market may not improve at least for another few years.