Clyde & Co Publishes London Market Report

Global law firm Clyde & Co’s second annual London Market Professional Indemnity Report, based on a survey of PI professionals across underwriting, broking and claims, reveals widespread optimism about market conditions for the coming months, tempered by wariness of macroeconomic and inflationary pressures on the horizon.

While 88% of respondents said they believe rates will continue to increase in the next 12 months, a significant majority (61%) said that broad economic trends would affect the volume of PI business underwritten in the London Market.

The main findings of the report cover:

  • Market dynamics: 81% of respondents expect more new entrants, exits and consolidation in the marketplace in the coming months
  • Claims: 80% expect the frequency of claims to increase in the next 24 months, while 68% expect the severity of claims to increase in the coming two years
  • Pricing: 88% of respondents say rates will increase in the next 12 months
  • Appetite:  53% of insurers say their appetite for writing PI coverage will increase
  • Economic trends: 61% of insurers said they believe broad economic trends will affect the volume of PI business written in the London Market
  • COVID-19: 64% say post-COVID working practices will create challenges in building and maintaining networks

Simon Konsta, Partner, Clyde & Co, commented: “These findings show a great degree of optimism in the London PI market despite increasing economic headwinds. While respondents overwhelmingly believe the frequency of claims will increase over the next two years, there’s confidence that the market has sufficient capacity and is at a satisfactory level in terms of rates to weather any coming storms and remain both a competitive and respected hub for PI risks. The fact that the majority – 86% – of respondents said that buyers would be able to maintain existing aggregate limits at their upcoming renewal is also key; professional services firms need significant limits in current conditions and a stable market to provide them. Respondents, as well as buyers of PI coverage, will have an eye on inflation levels as we move past the most recent renewals.”

Economic concerns starting to have an impact

The survey took place in May, since when the UK Prime Minister has resigned and inflation has increased still further, but respondents were already mindful of the effect the macroeconomic and geopolitical climate will have on the PI marketplace. While they will continue to monitor the impact of these challenges, on the claims picture in particular, it seems likely that the distress will be less widespread than in the Global Financial Crisis of 2008 and instead confined to specific areas and risks.

Market appetite remains robust

The survey showed that there is still strong appetite for writing PI business in the London Market, with 53% of insurers saying their appetite will increase over the next 12 months and 44% believing it would remain at current levels. The majority – 86% – of respondents said that buyers would be able to maintain existing aggregate limits at their upcoming renewal. Respondents noted, however, that most carriers will reduce or restrict coverage for specific perils in the next 12 months, while increasing the offering for standalone, affirmative coverage.

Claims outlook worsening

Most insurers, brokers and claims experts surveyed expect the claims picture to worsen significantly over the next two years, with 80% expecting the frequency of claims to increase in the next 24 months. 68% expect the severity of claims to increase in the same period. More than half of respondents (57%) said that economic uncertainty, including wage and cost inflation, would materially influence the volume of claims.

Rates

While rates continue to harden, respondents noted that across most business sectors the pace of that hardening was slowing. Although more than half predicted rate rises of 5% or more in the next 12 months, and 27% predicted rate rises of 10% or more, most said that the market would not likely harden further over the coming two years. While there are some pockets of business where rates will continue to increase, increasing competition is dampening rate rises in other areas, although most respondents believe the market is maintaining discipline – for now.

COVID legacy

Many respondents noted that the impact of the COVID-19 on the claims picture may turn out to be less severe than first feared. But the on-going legacy of the pandemic and changing ways of working are having an effect. While hybrid working patterns have been broadly welcomed, there is a degree of caution that changes to working habits might make it more difficult to build and maintain relationships – something which has hitherto been vital for the London Market in particular.

Simon Konsta added: “While respondents clearly expect claims to rise in the next two years, they remain broadly optimistic about discipline in the marketplace. The market remains confident but wary of larger trends, such as the economic environment and the impact that changing working patterns may have on its ability not only to build and maintain networks but also to attract and retain employees against the backdrop of the insurance industry’s continued war for talent.”

About alastair walker 9284 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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