Greater regulation and an influx of new entrants is creating a new dynamic for the professional indemnity market.

Speaking to Emerging Risks, Charlotte Major, (above) newly appointed senior claims adjuster – PI, at Markel International, said the PI class was undergoing change driven by a range of issues.

“We’re seeing increased competition between new entrants and returning insurers to the PI market, which is leading some firms to offer more competitive rates to secure business,” she explained. “Alongside this, we’re seeing policies offering wider and more favourable coverage terms, as some carriers try to differentiate themselves to win new customers and retain their existing policyholders.

“There has also been an increase in higher severity losses in the market, which means excess layers are becoming involved earlier much more frequently.  This is likely at least partly down to rising costs, causing damages and awards to increase, especially in construction. Legal fees are also increasing significantly, both on the defence and claimant side, leading to a rise in the cost of claims.”

Major added the legal sector highlighted the desire of regulators to exert more influence over the sector’s operation.

“We’re seeing stronger regulatory input, with regulators such as the Solicitors Regulation Authority and Financial Conduct Authority becoming more stringent, especially in respect of professionals’ personal conduct,” she continued.  “The SRA has increased the frequency and financial impact of its interventions by introducing fixed penalties for minor breaches and turnover-based fines for more serious failings.

“Events such as the collapse of Axiom Ince and SSB, coupled with the Legal Services Board’s subsequent reviews, have put pressure on the SRA to implement these new measures. How the latter intends to move forward could have an impact on the risk exposures that firms and insurers are facing.”

Major explained: “We’ve seen the FCA start to take more market-wide action, notably with the Motor Finance review.  The proposed redress scheme is currently widely drafted, and it will be interesting to see if the FCA narrows its approach, following market and industry responses to the consultation, last year.

“Linked to this, there’s an increased expectation on claims services and the support offered to insureds.  With the increase in regulatory developments, insureds will often look for guidance when dealing with regulatory issues even where cover for the investigation itself may not be provided.”

Major said there has been a marked improvement in the processes and procedures regarding claims.

“Any discussion of changing risks inevitably turns to AI,” she said. “Although much of the focus remains on horizon scanning, we’re already seeing tangible issues emerging, including lawyers submitting court documents that reference hallucinated case law. How firms use AI will continue to be a prime focus for carriers, ensuring the risk of over reliance or misuse is being mitigated as much as possible.

“AI is also changing how claims are brought, with litigants increasingly using AI to draft pre-action correspondence and court documents. This often makes claims more difficult to defend and to deal with efficiently and commercially.”

Faced with a changing market Major said clients are looking for more from their insurers.

“There’s been an additional expectation on insurers for some time, and I expect this will increase while the market remains competitive,” she added. “Although market conditions are creating challenges, they offer insurers the opportunity to set themselves apart, not just on price and coverage, but also in terms of the support and services they’re providing to customers.

“Insurers are expected to put a clear Claims Value Proposition forward, highlighting exactly what brokers and insureds should expect when a claim arises. Insurers must be able to articulate what this means in practice and then live by those promises.

“Insureds are looking to insurers for training on claims trends and horizon scanning, as well as input on risk management in terms of processes and procedures to mitigate against claims.  There’s a real impetus on getting to know insured clients and their business through regular catch ups and reviews, and we’re seeing a definite trend back to in-person – rather than virtual – engagement to strengthen relationships.”