Aon has outlined tips to help “take control” over how professional indemnity (PI) risk is viewed and rated by insurers.  

An Aon survey of dominant PI insurers revealed a year-to-date average premium increase of 7-10% across portfolios.  

Aon expects this to be closer to 5% as the year progresses but says premiums are likely to remain under pressure until economic conditions stabilise, even as insurer PI loss ratios show improvement. 

“We are seeing inflated claims costs and additional risk exposures holding and continuing to put pressure on PI premiums,” it said. 

PI claims costs for small clients were fairly stable during 2009-2021, however the number of large claim settlements greater than $1 million jumped 60% in 2014, and 11% in 2021, according to the Australian Prudential Regulation Authority (APRA).  

Premium increases for large corporate clients consequently increased from 70% to 160%. 

In the first half of 2023, Aon says its experience indicates less challenged professions have moved “into the four o’clock to six o’clock positions” of the insurance market cycle – tempering overall increases.  

Professions considered low risk with few or low severity claims are attracting renewed interest from new or alternative markets, and sometimes flat or even lower premiums at renewal. 

For small companies, Aon says it is starting to see a renewed interest from Lloyd’s in providing capacity behind underwriting agencies to service that pocket of the market, and a desire from established insurers to grow their SME portfolios.  

Softening market conditions across directors & officers insurance is starting to yield a greater interest in growing insurer PI portfolios to reach overall revenue targets, and Aon says this should boost capacity as the year progresses. 

However, for professions in a distressed industry where claims and loss ratios continue to be a challenge, upward pressure on premium remains. Insurers continue to apply strong scrutiny and remain cautious in their risk selection, often walking away from risks that do not comply with minimum underwriting, pricing or deductible levels.  

Construction industry insureds’ ability to secure desired limits is dependent on the type of work they are involved in, where they sit in the contracting chain, and risk maturity.  

“Upwards pressure on premiums and deductibles continues, with many insurers implementing minimum deductible levels and walk-away pricing. From a coverage perspective, insurers are becoming less likely to offer Loss Mitigation coverage and are specifically excluding cost estimates,” Aon said. 

Capacity for fintech risks remains limited, with average premium increase of 54% across the sector in the first half. 

"Since then, there has been a material slowing of rate increases, and targeted remarketing can yield flat premiums for certain insureds,” Aon said, adding though that exposure to crypto and digital currency tends to be excluded, and coverage for penalties, loss mitigation, and commissions remains limited.  

Insurers also tend to underwrite tech professional indemnity risk alongside cyber risk, sometimes as a packaged policy.  

For solicitors, Aon says new entrants into the market means most secure their desired PI limits, though this new capacity is not competing on price and is “rather filling gaps on existing programs”.  

Overall at renewal, Aon says organisations should work with their broker to map out key priorities before approaching the market.  

“Balance sheet risk tolerance, licensing requirements, and contractual requirements will dictate non-negotiable considerations such as limit and deductible levels, the number of applicable reinstatements, carrier ratings, and the commerciality of premium levels,” it said. "Be prepared for additional queries.” 

Organisations with recent or trending claims should be prepared to provide further detail, and insurers will “look for a demonstration of lessons learned and adjustments to risk management processes to avoid similar claims in future”. 

“Insurers will seek to understand contractual risk management practices. Clear demonstration of good risk management practices will stand insureds in good stead.” 

Aon also says if an insurer is rating a business based on increased inflationary-driven revenue – and applying an inflationary claims loading on top – “you may be double paying for the same thing”. 

See the report here.