Accountants Professional Indemnity insurance outlook
NTEGRITY SURVEY PI INSURERS
April 2010
We surveyed specialist Accountants PI insurers in January 2010 and found that while 27% of those who responded expect market-wide premium rates for all professions to rise by up to 10%, when asked about their own approach only 18% expect rates for Accountants to rise in this way.
64% of respondents expect premium rates for Accountants to remain at 2009 levels and 18% expect further falls in rating of up to 10%.
Stable rating signs are even more interesting and arguably questionable when placed alongside the response to a number of claims questions. When asked about anticipated new claims activity, 82% expect the number of new claims to increase on 2009 and 18% expect the increase to be substantial. 64% expect the cost of claims in 2010 to be higher than in 2009.
NTEGRITY comment
This picture will please Accountants but it is important to remember that while we have a stable rating horizon, the premium charged also depends on the fee income of the firm and its own unique characteristics and claims record. If fee income falls and rates are unchanged from last year, a corresponding reduction in premium might be reasonably expected. Insurers argue however for retaining the same premium as the ‘claims made’ policy covers all historic work including that from better times past.
One consequence of the low rating levels that have existed for the accountancy profession over the past six years is that claims notifications are being met by a tougher stance from Insurers and much greater scrutiny.
If claims volumes and costs increase in the way anticipated, it could have a fairly immediate impact on premiums as insurers are no longer able to rely on historic levels of investment income to balance the books and claims will have to be covered by premiums.
The PII market for Accountants has been benign for years now but how much longer will it remain so?
Annual research into the UK Professional Indemnity insurance market by Datamonitor reports that in 2008 the combined ratio across all insurers (the ratio of claims paid and outstanding compared to premium, with no provision for broker commission or insurer expenses) was 90.6% and had risen from 70.1% in 2007. This is an enormous shift in a year and with typical insurer expense ratios across the market in the mid 20’s% factored in, the UK market moved firmly into loss. 2009 and 2010 are unlikely to improve and pressure will build for a correction.
The Gaines Cooper case and increased HMRC scrutiny could provoke a spate of tax claims if advice given has been ineffective and insurers might well feel that the need to build reserves against this threat is now pressing.
E Mail accountants@ntegrity.co.uk