April 2024 PII renewal – more of the same?

The simple answer is probably not.

But general economic factors are coming into play that are, undoubtedly, making insurers rethink their attitudes towards certain business lines. 

Generally, insurance products fall into two broad categories representing distinct claims payment patterns:

• short-tail claims maturation: the delay between the claims event and claims payment is relatively short. An example is physical damage insurance for, say, motor vehicles or property
• long-tail claims maturation: there can be many years of delay between the event and the claim’s settlement. Indeed, the claims-made basis of PII means the insurer paying the loss might even be different to the insurer providing cover at the time

With prevailing high levels of inflation and interest rates at an almost two-decade high, will insurers look to leverage claims maturation time to their advantage?

And will they move from short-tail, inflation-impacted policies to long-tail products where claims reserves will generate significant investment income before the claim is finally paid?

Whether this interpretation of insurers’ motives is accurate, there are indications certain PII insurers are looking to expand their portfolio. Instinctively, this would suggest rating incentives.

But be warned; acquisitional insurers are likely to be highly selective. Only the best presented firms might qualify for what is probably a limited opportunity.

Get ready

To give yourself the best prospect of achieving beneficial renewal terms – either from your incumbent or new insurer – you must prepare.

It is a fairly commonly held conception that PII is heavily automated, with actuarial algorithms churning out quotes that underwriters superficially vet.

Although sophisticated rating systems perform the heavy lifting during busy renewal seasons, underwriters perform a hands-on role.

We anticipate the manual intervention of underwriters to be particularly evident during the upcoming renewal for two reasons:

1. there are emerging risks too recent to be fully integrated into automated rating systems, such as:
   • post-COVID, remote working practices that might have had a detrimental impact on the effectiveness of supervision, and
   • emerging legislation such as the Building Safety Act
2. if one or more insurers’ ambition is to expand their PII portfolios, any premium incentives offered to renewing or prospective clients will likely require the underwriter’s specific authorisation

Whatever their motivation, we anticipate a high level of underwriter scrutiny during the upcoming renewal.

This means your insurance application needs to be accurate, presented well and, most of all, represent a snapshot of your firm that enables the underwriter to make informed decisions.

With some of the insurance applications we have received, it’s not clear whether some firms would even recognise themselves from the submissions they’ve produced.

When starting to prepare your renewal submission, there are three key takeaways.

1. Don’t leave it to the last minute. Hurried presentations rarely produce a compelling narrative of the firm’s structure and activities. Late submissions are likely to miss the boat in terms of any renewal incentives offered by insurers. The early, well-prepared bird is likely to get the worm.
2. Preparing a PII application is likely to be a group effort. Distributing tasks early in the process will give colleagues time to allocate resources, and produce and check the information they’re contributing.
3. Understanding the sequence and timeline for your renewal arrangements will allow you to structure your efforts and reduce the need to retrace your steps to fill in any gaps.

Six tips for structuring your renewal

There are a lot of moving parts when it comes to preparing your PII renewal documentation.

Our six-step guide represents an effective and practical structure for your firm’s preparations.

1. Understand your general claims picture

Review open claims and ensure all matters are notified to insurers.

A good understanding of your general claims picture and awareness of significant losses is crucial.

You should ensure that open claims have accurate reserves and closed claims are identified as closed in your loss record.

Underwriters evaluate open and closed claims differently, emphasising the importance of accurately documenting their status in your claim’s statistics.

Although ongoing claims reviews might seem onerous, they are essential to shaping your risk and operational controls and, supported by your insurer’s up-to-date claims statistics, preparing your SPI insurance application.

2. Review your claims and risk management

Insurers will look for evidence that you have pinpointed the underlying reasons for losses and taken corrective measures, updating policy and training documents to align with your most current operational and risk management standards.

3. Consider your business and resilience plan

An essential part of your renewal preparation involves effectively communicating your upcoming year’s objectives and showcasing that yours is a well-managed, financially stable firm.

4. Plan your proposal form and supporting documents

In many cases, underwriters gain crucial insights into the firm’s operations solely from the papers submitted during renewal negotiations.

The quality of your documentation significantly impacts the underwriters’ perception of your firm.

5. Negotiate with underwriters

Underwriters’ workload intensifies during the renewal season.

Acknowledging that their responsibilities become increasingly demanding despite having efficient back-office systems to support them is essential, and we strongly advocate a front-of-the-queue approach to renewal submissions.

6. Assess your quotes and issuing instructions

After completing the quotation process, your broker should invite you to discuss the options for your firm.

After the initial assessment, your broker will formally present the most advantageous option.

While you might initially think that the most beneficial terms involve the lowest premium or excesses, consider other factors such as:

• claims support
• personal guarantees
• claims disclosure obligations

Many external factors are beyond our control as consumers of insurance products, so we must focus on those we can.

• create a positive perception of the firm through the quality of your insurance presentation
• ensure any historical claims causes are identified, and demonstrable remedial action has been taken to prevent reoccurrence
• whether the firm has any formal quality assurance accreditation, convince insurers that you have adequate risk and operational controls given your firm’s size and the type of work performed

What should you expect this year?

It's likely that the approaching PII renewal will largely be more of the same for most.

If, however, your firm is targeted by an acquisitional insurer, stop and think before jumping ship.

Targeted firms probably have favourable claims records. Sizeable premium balances will likely be left with the incumbent insurer when switching carriers.

In the unfortunate event you sustain a significant loss within the first year or two after switching, there is a relatively small premium credit balance against which to offset losses.

If forced to re-market the firm’s coverage, adverse recent losses combined with the perception of insurer-hopping might be a red flag for any future insurer.