Professional indemnity market in Ireland: Update and overview
23 April 2019
The professional indemnity market in Ireland is undergoing significant change. This also applies to those that purchase design and construct professional indemnity insurance. Brian O’Mara looks at the current state of the market, and revisits important steps every firm should take regarding their own renewal
There are two marketplaces for insurance of engineers' professional indemnity for Irish companies: insurers with a local presence, and those based in London - more commonly Lloyd’s of London.
The professional indemnity (PI) market in Ireland is undergoing significant change. This also applies to those that purchase design and construct professional indemnity insurance. Brian O’Mara looks at the current state of the market, and revisits important steps every firm should take regarding their own renewal.
There are two marketplaces for insurance of engineers’ professional indemnity for Irish companies: insurers with a local presence, and those based in London – more commonly Lloyd’s of London. ‘Lloyd’s’ is made up of a number of ‘syndicates’ – insurers. Many Irish engineers are insured with London insurers.
Post-Grenfell, UK-based insurers pushed back on any risks which had any involvement with cladding – asking more questions, and sometimes restricting cover or even not offering renewal.
The fact that Ireland has different underlying factors relating to how cladding is dealt with has little bearing – what happened in London and other jurisdictions such as Australia was influencing what was being enforced worldwide. This particularly affected the likes of fire engineers.
Separately, Lloyd’s carried out a performance review for the period 2012 to 2017 across all of their insurance portfolios. The results were released last year and made for grim reading – in 2015 to 2017 more than half (52 per cent) of the syndicates were unprofitable.
More specifically professional indemnity insurance (placed worldwide but excluding the USA) was the second-worst performing book of business across the whole of Lloyd’s in that period.
Returning to profitability is now a huge focus at Lloyd’s – in late March they announced a loss of £1 billion (€1.1 billion) in 2018 – in 2017 the figure was £2 billion. Each unprofitable syndicate needs to draft a plan to return to profitability within three years.
If Lloyd’s management do not agree with these plans, they can shut these syndicates down. The initial reaction was for many syndicates to withdraw from certain classes of insurance. Those that remained have been increasing their rates on renewals, and are restricting terms on new business.
We have not had significant issues in Ireland with cladding claims, although some insurers do want some additional information before quoting. Due to what is happening in London, Irish insurers are seeing an influx of proposal forms.
These same insurers are not immune to what is going on overseas and are looking at how much construction PI they underwrite, and what limits of indemnity they offer.
This has all rapidly led to a capacity issue here in Ireland, even on renewals. Over the first few months of this year we have seen insurers look to reduce what limits they offer and what percentage of the risk they will insure. See Panel 1 below for an explanation of this.
Excess layers (increasing your limit of indemnity)
An excess layer may be required if you need to increase your limit of indemnity, say for a particular contract, and your current insurer (primary layer) cannot offer the full cover.
The excess layer sits above the primary. For example, the primary layer is €2.5 million, and the excess is €2.5 million. A claim settles for €4 million – the primary layer pays €2.5 million, the excess pays €1.5 million.
Quoting excess layers was once quite straightforward for most firms. An engineer might call their broker and say they need to increase their limit from €1 million to €2 million due to contractual requirements.
An experienced broker could provide a very rough indication of premium, and then obtain a formal quote when things progressed. Pricing is now much harder to predict and turnaround times on these inquiries are much slower as a result. This has knock-on effects when engineers are trying to price up contracts – often having won the contract.
Ireland versus the UK
As a rough rule of thumb, Irish insurers are more reluctant to offer an excess layer or co-insurance where the primary/main insurer is based in the UK. There are concerns locally that UK insurers are not adequately pricing Irish insurance, and concerns that policy coverage is different to what they would provide.
Therefore, for policies placed in London, quite often excess layers will also have to be placed there. This reduces the options available to brokers.
What does this mean for you?
We previously dealt with presenting your PI to insurers in this article back in 2016. The points raised still stand, but in summary:
1.) Get your proposal form in early. We would generally request it six to eight weeks prior to renewal – it should be returned within a fortnight to allow your broker sufficient time to obtain the best possible renewal terms.
2.) Claims – ask your broker for an updated formal claims report. This shows costs incurred and what the insurers are setting aside (reserving) for future costs. You are entitled to this and if alternative quotes are required / preferred, insurers will have to see this document before they can confirm cover.
3.) The claims report provides very basic information. Send on a supporting email outlining what happened. Just as important – explain what steps were taken to prevent it happening again.
4.) For excess layers – price these up before committing to purchasing higher cover. However bear in mind that you may have to keep the cover in force for several years post-completion, and future pricing is not easy to predict. A positive is that the higher limits enable a firm to tender for larger contracts.
PANEL 1: INSURER CAPACITY
An engineer carries a limit of €6.5 million PI, as it is needed for several contracts they work on. It is all insured with ABC Insurance. At renewal time, ABC reduce their limit to €2.6 million. The firm now needs an excess layer of €3.9 million from a second insurer, to bring them back up to €6.5 million. Another method of managing what limits they put out is for ABC to quote the full €6.5 million limit, but only 50 per cent capacity. In this example a second insurer is required to ‘follow’ ABC’s terms (co-insurance), and provide the remaining 50 per cent. Your broker can explain the differences in more detail if this arises, but the end result is the same with either option, in that the firm needs two insurers to get the required limit of indemnity.
PANEL 2: KNOW YOUR RIGHTS
We were recently contacted by an engineering company who were told the day before renewal that their existing insurer was not going to offer renewal terms. When they rang us their policy had gone off cover. We were able to highlight that they are entitled to an extension of cover, which they then obtained. In the interim we were able to source terms at the same levels as the year before.
Author: Brian O’Mara has specialised in professional indemnity insurance both in Ireland and abroad since 2008. He returned to Ireland in 2015 to work with Ireland’s largest independent broker, O’Leary Insurances. In that time, he has focused on sourcing insurer capacity for difficult to place risks, including PI for engineers of all sizes. Email: email@example.com or telephone 021 453 6860/083 842 4087.http://www.engineersjournal.ie/2019/04/23/professional-indemnity-market-in-ireland-update-and-overview/http://www.engineersjournal.ie/wp-content/uploads/2019/04/a1-18-1024x683.jpghttp://www.engineersjournal.ie/wp-content/uploads/2019/04/a1-18-300x300.jpgCivilconstruction,fire,UK