Professional Indemnity (PI) insurers could be hit by 'claims avalanche'

6/1/2009

Professional Indemnity (PI) insurance providers may well be set to find themselves facing an increase in claims made against them during the next few months.

Such is the assertion of Katie Puckett, where writing in an article for Insurance Times, she suggested that insurers are now taking steps to prepare themselves for an "avalanche of claims" from solicitors, in relation to property deals that they have been involved in as the difficulties within the global financial markets persist.

However, it is not just solicitors that are set to be the target of PI claims, as Ms Puckett points out that surveyors and consultants are also to find themselves under more pressure.

With the value of investment portfolios showing significant signs of decline over recent years and an increasing number of homeowners struggling with managing their monthly mortgage repayments, Insurance Times suggests that banks are now looking to recoup some of the money they have lost. Consequently, the attention of such financial institutions is towards the solicitors, consultants and surveyors who had originally advised them on such deals.

Furthermore, it was suggested that a number of firms which have given advice on property transactions - and in particular those whose line of business is particularly reliant on valuations - may be set to find that sourcing cover is an increasingly difficult task.

Commenting on the situation at the end of 2008, Roger Flaxman, owner of Flaxman Partners, pointed out that a number of underwriters are beginning to take steps to withdraw terms. The head of the advisory organisation said: "Some don't want to underwrite these companies at all, others are increasing self-insured excess or putting up prices. I think it will suddenly go [up] next year."
However, it has been suggested that lawyers may attempt to argue whether there can be a legal case at all, as they will ask the question of whether anyone would have been able to have predicted the full extent of the property - and indeed the wider economic - downturn.

Mr Flaxman said: "I think lawyers will be able to make a very clever case, saying you could have foreseen only to a certain extent. It's fairly tricky." He added that the current financial situation is "extraordinary".

In a bid to protect themselves from the currently volatile nature of the market, he reported that a number of property firms have implemented specific clauses into their valuations which aim to recognise uncertainty. However, Mr Flaxman stated that doing this could see firms break legislation on unfair contract terms.

"Insurers are cynical enough to say 'I don't think it's a very good protection'," he added.

Marc Riches, Director of specialist PI broker PYV, said "Given the likely difficulties in the coming months in obtaining cover at a competitive premium, it is important that the services of a professional, specialist Broker such as PYV are sought. For those that do not already buy it, the taking out of comprehensive PI insurance policy may indeed be the most advisable way for firms to help protect themselves as the financial crisis continues. For those that do already buy PI, it is imperative that they check they are comfortable with the level of cover they have and we would be delighted to assist in any way possible."

Click here for more information on Professional Indemnity Insurance in general.

PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2008 Adfero Ltd.

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