Minimising insurance premiums amid economic uncertainty

There are positive signs in the accountancy PII market, with increased competition causing rates to stabilise.

Nevertheless, ongoing economic uncertainty is leaving firms with unwelcome cost-pressures, underlining the need to keep insurance costs to a minimum.

Optimism returning to the market

In our last update on the professional indemnity insurance (PII) market, we reported significant rate increases in previous renewal seasons. This was driven primarily by a number of insurers exiting the market, while those that remained focused on correcting their books of business instead of actively pursuing new opportunities.

Underwriters were approaching the market with scrutiny, exercising caution, and undertaking extensive due diligence at renewal, making it challenging for accountancy firms to secure comprehensive coverage. Regulatory reforms, cyber and fraud threats had further brought the profession into the eyeline of insurers. The emphasis fell on firms to demonstrate risk mitigation measures during submission.

Fast-forward to the present, and there is a growing optimism within the market, with stability and confidence returning following a three-year period in which the market hardened at a rate unseen for 20 years. Insurers are once again entering the PII market, including the re-entry of those who had previously left.

Amid this increasingly competitive environment, the majority of firms are seeing rates stabilise, with the exception of those with an adverse claims history, or who carry out higher-risk work, such as audits.

Cost pressures remain for accountancy firms

Despite the positives within the PII market, however, many firms continue to face pressures. Inflation, rising interest rates and threats of recession have increased business costs in the past year, forcing companies to focus increasingly on streamlining operations in order to prioritise cash flow.

A tight labour market, combined with underlying wage growth, is exerting further pressure. Personal expenditures have also increased, placing a particular squeeze on smaller firms and sole-trader accountants.

In light of this challenging economic environment, many businesses may want to keep their insurance expenses at bay as a means to offset costs elsewhere. Below are a few tips to bear in mind when it comes to the renewal process, including best-practice for engaging with insurers: 

Recommendations for firms

• Begin the renewal process early, particularly following recent filing of claims, or if performing work perceived to be high-risk work. There are peak times for renewals and insurers can be more selective if they are busy. Starting early will allow brokers to approach underwriters with a convincing presentation.
• Review policy wordings to identify any overlaps or gaps between cyber, directors’ and officers’ liability (D&O) and PI policies. Overlaps can add complications when claims arise, while gaps can severely impact business finances in the case of a loss.
• Ppresent renewal information in a clear and transparent manner, in a way that underwriters will understand, remaining mindful that they may not be familiar with specialist or technical knowledge and vocabulary.
• Pre-empt insurers’ questions and concerns by supplying information upfront. This will help to shorten the quotation process and maintain insurers’ interest.
• Provide any mitigating information. If the business is likely to be viewed as high risk, identify steps that can be taken to reduce and manage the risk (eg continuing professional development, staff training, cyber awareness or limited liability clauses).
• Implement strong IT and cyber-security measures. Insurers look favourably on precautions such as multi-factor authentication, patching and back-up policies.
• Consider raising the policy excess if you perceive your firm as a low risk and/or the business could afford the cost of a potential loss, as it may result in lower premiums.
• Pay premiums in a single amount – most monthly payment options will be via a credit facility with interest charges.
• Avoid policy lapses and late renewals. Insurers will see this as an indication of lack of planning and poor professionalism. If a late renewal is likely, brokers should be informed as soon as possible.
• Carefully consider the level of cover required. For instance, where work could result in multiple claims arising from a single cause, insurers will typically treat them as a single claim. It may be necessary to negotiate higher policy limits.

Mark Grinter, account manager, Lockton Companies LLP

If you have any questions about professional indemnity insurance please contact your Lockton Account Manager for further advice or email ACCAaccountants@uk.lockton.com. 

Lockton is ACCA’s recommended broker for professional indemnity insurance