“Here at ICAEW, we’ve seen an increase in firms approaching us that are experiencing difficulty in renewing their insurance this year,” says Sarah-Jane Owen, PII and Regulatory Manager, ICAEW. This is a direct result of a hardening PII market and means that firms, whatever their areas of business, must prepare well and early for renewal.
PII is compulsory for all ICAEW members who have a practising certificate and engage in public practice. It is also a requirement for specific regulated areas, such as audit and insolvency. Under ICAEW’s PII Regulations firms must use a “participating insurer”, which provides cover in line with the regulations and minimum approved wording.
Shying away from risk
The problems in the market date back to 2018 when a profitability review from Lloyd’s identified non-US PII as one of its worst performers. The market has been adversely affected by a wide range of factors, including the events at Grenfell Tower, restrictions in reinsurance markets, Brexit and the impact of the pandemic.
“These have combined to mean we’re now operating in a hard market. This means insurers are focusing on profitability,” explains Owen. “Some insurers are exiting the accountancy market altogether, and some are not taking on any new business, restricting certain areas of work or shying away from high risk areas.”
Insurers staying in the market are inevitably increasing premiums, which in some cases can be dramatic. With demand now outstripping supply, some firms can expect an increase in premiums even if their risk profile has not changed. Generally, firms are seeing a 10 to 30% increase, with some facing a doubling of premiums, especially if they have a history of claims.
“We have found a handful firms really caught out in the run up to renewal, and this is despite apparently no significant changes in their business and no recent claims,” says Claire Phillips, Secretary, PII Committee, ICAEW.
Problems mainly arise where firms have left it late to start the renewal process; or where they have been let down by their broker and not exhausted all options in the market. Your broker needs to understand your business, so it can present the firm’s risk profile clearly to insurers. You also need to check your broker can explore all available options and is not tied in to a particular market.
Most importantly, you need to start renewal early, ideally six weeks or more before the due date. “We’ve heard from brokers, particularly during Covid and remote working, that there are fewer opportunities to engage with insurers,” says Phillips. This not only limits the opportunities to go back and forth in negotiations, but also can mean insurers take longer to respond to enquiries.
“It’s really important to prepare thoroughly and well at the outset so you can present a full and accurate picture, as you may only get one shot,” advises Phillips. It might seem obvious, but also take time to complete the proposal form in detail. These can be lengthy and some of the questions might not at first glance seem relevant. “Don’t make assumptions in this regard,” she warns. “Don’t treat it as a tick box exercise.”
Another tip is to think carefully about what other information you can provide to the insurer, and have this ready to pre-empt likely questions down the line. Useful documents might include your risk management strategy, or policies and procedures for fraud prevention and staff training.
If you are carrying on activities insurers consider high risk, or have been involved in these activities in the past, such as tax avoidance scheme referrals or financial services work, think about what information you can provide in these areas, advises Phillips. Likewise, if you have a claims history, insurers are likely to ask further questions about their cause, their status and what you’ve done to prevent future claims. Have this information ready, and seek advice from your broker.
If the worst happens and you find yourself struggling to obtain compliant cover as the renewal date draws closer, what can you do? The first thing to remember is that the minimum approved wording from your existing insurer means you are entitled to up to 30 days of additional cover on your current policy. “This can be really useful,” says Owen. “And we’ve found some brokers are not necessarily aware of this benefit.”
If you need cover beyond those 30 days on your current policy, you can apply for emergency cover in the assigned risks pool (ARP). This is an insurer of last resort, underwritten by all ICAEW’s participating insurers. It is available for up to two years and is designed to allow you to continue to practise, while protecting the consumer.
You can obtain insurance through the ARP initially for 30 days at a fixed cost of £1,000 plus insurance premium tax. If you require cover beyond that, it proceeds onto annual terms. “These premiums are not commercially priced and can be substantial. At the moment, we’re seeing average premiums in the ARP at around 20% of a firm’s gross fee income,” says Phillips, “which is obviously a huge cost.”
Finally, in exceptional circumstances, some firms can apply to ICAEW’s PII Committee for a dispensation. For example, a firm may have a quote that is not exactly compliant under the regulations, but the committee may agree to relax certain requirements. “That really is a last resort,” emphasises Owen, “and firms must ensure they’ve exhausted all other options before requesting a dispensation. The PII Committee has an absolute discretion in determining applications and will always have in mind, first and foremost, the impact of any restrictions of cover on client protection.”
No business wants to face crippling premiums or a last resort, so to give your firm the best chance of securing compliant cover:
- prepare for renewal as early as possible;
- check your broker has access to all markets;
- talk to your broker so they understand your business; and
- provide as much information as possible to insurers, particularly if you’re involved in high risk areas or have a claims history.
In a future article, we will look at some simple steps to reduce the likelihood of a PII claim in the current climate, and how to mitigate the impact of a claim if it does arise.
To listen to some case studies and hear more from Sarah-Jane Owen and Claire Phillips, watch ICAEW’s small practice community webinar with Professional Standards and Marsh Commercial on how to avoid costly PII mistakes.
The PII Committee is recruiting, if you have the experience to help us maintain and support high standards of practice and professional conduct and would like to serve on the PII committee, we’d be delighted to hear from you. If you are interested in joining the PII Committee please contact Sarah-Jane Owen, PII & Regulatory Manager.