New brokers can often be used to drive pricing down – is this market sustainable for brokers and insurers alike?
This blog post was also featured as a column in the November 2015 issue of Legal Practice Management magazine. To read the issue in full, download LPM magazine.
The 2015 solicitors’ professional indemnity insurance renewal season saw fierce competition, with brokers and insurers driving premiums down. At this stage, with no market data available, it’s hard to estimate the size of these reductions. Many firms would have had rate reductions only due to fee growth, but others would have seen their actual premium reduce also, therefore a reasonable estimate would be a 10% reduction overall on last year. We must consider the reasons behind this shift in underwriting appetite and assess the potential future implications of the current market.
As it stands today, there’s an abundance of capacity in the insurance market in general. During some challenging years for banking, the insurance industry became a safer bet for investors yet still provided the possibility of double-digit returns. Despite some significant losses across the market, pricing has remained soft and does not appear to be shifting. This is certainly the case in the professional indemnity market that saw a plethora of claims after the credit crunch, but which is now as soft as it has been for many years.
Rates across the PI market in general are also low, yet solicitors still typically pay a higher rate on fees than an accountant, for example. Therefore, it’s possible insurers still see the size of some of the solicitor premiums as attractive, especially when other professions are paying significantly less. However, right now this is good news for solicitors. Fee income is generally increasing as our economy grows and premium rates are reducing. This should have a positive impact on the profit margins of solicitor practices.