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Rise of new professions to create new PI demands
Written by staff reporter
The rise of ‘new professions’ and ‘hybrid businesses’ and their need for tailored Professional Indemnity (PI) insurance. This is among the major trends expected to influence the insurance market in 2017, according to the Annual Insurance Review by law firm RPC.
RPC says hundreds of new emerging professions now requiring PI insurance mean that ‘miscellaneous PI’ has become firmly established as a fast-growing PI class of its own. The hundreds of subsectors of the professions that are now beginning to need PI include those professions that have only recently attracted legal claims such as mediators, recruitment consultants and experts.
Emerging professions and hybrid businesses now needing to secure PI might include robo-advisors; accountants now acting as IFAs and architects providing interior design services.
James Miller, Partner and Head of Insurance and Reinsurance at RPC, says: “PI providers are catering to a growing client base of new professions and hybrid businesses. In most cases, this means totally new territory.”
“These businesses are often based on new concepts like app-based advice – and they need PI insurance to match. They do not fit into any pre-existing ‘boxes’ – and this means a lot more care and attention is required on the part of the insurer.”
“It also means there is potential for a substantial new revenue stream for insurers who stake out territory in this new market.”
Cyber liability insurance
While many bigger businesses – especially those holding personal data on customers – have specialist cyber liability insurance in place, increasing awareness of the financial and reputational costs of dealing with the fallout from a data breach is leading more small and medium enterprises to take similar steps.
Miller says: “Big businesses are asking their supply chain of SMEs to get this insurance.”
“Cyber security is no longer just a big business concern. Smaller businesses also hold a huge amount of data and customers are increasingly concerned about the effects a data breach could have on them. This is a trend likely to grow in 2017.”
The FCA’s review of PI for IFAs
The Financial Conduct Authority’s consultation on the funding of the Financial Services Compensation Scheme (FSCS) could mean that liabilities traditionally covered by the FSCS could be shifted onto PI insurers, leading to increased premiums for Independent Financial Advisors (IFAs).
The FSCS is the statutory compensation scheme for customers of regulated financial services firms in the UK, to which financial services firms contribute via levies. The FCA’s consultation on restructuring its funding closes in March 2017.
“IFAs could be very much in the firing line as the FCA looks to balance out FSCS funding,” Miller explains. “One way they may look to do this is by shifting some of the current liabilities of the FSCS onto PI insurers – which will considerably ramp up how much IFAs will be charged for protection.”
“There is even the possibility of PI insurance for IFAs shifting more towards the model used for solicitors and accountants, with defined run-off periods and minimum coverage. That is unlikely to be popular in the profession due to the likelihood of increased premiums.”