Today in Germany we are seeing courts increasingly upholding claims made against professionals. Accountants, surveyors and those working in media and technology are particularly vulnerable to claims made against them for the professional services or advice they provide. These rulings are increasingly high profile as the settlement costs are also rising, fast.
This environment is driving the Professional Indemnity (PI) insurance market in Germany, with many of the country’s professional bodies and organizations now requiring their members to purchase such insurance cover.
This trend is set to continue, and I expect the market will grow further. According to a Finaccord study, gross premiums for PI insurance are projected to grow from EUR 1.5 billion in 2013 to EUR 1.7 billion by 2017, an average annual increase of 3%.
In Germany PI policies are written on an “occurrence” basis, i.e., the policy covers injuries or damages that take place during the policy period, regardless of when the claim is reported. While an occurrence form offers several advantages to clients – e.g. fixed costs, long-term protection and aggregate limits accumulation – it presents some challenges for insurers.
Setting premiums at the “right” level can be challenging and perhaps more importantly, adequate reserves need to be maintained to manage long-tail risks spanning years and even decades.
An increasingly litigious business environment has meant that insurers also need to move with the times. Historically PI providers in Germany have been relatively inflexible and many clients have been dissatisfied with the coverage available.
In fact for many years, only standard PI wordings were available to the defined set of buyers in Germany.
Today the client base has expanded to include a wide range of professions from technology companies to large commercial law firms. And these buyers require far greater flexibility – this has given rise to far more tailored products; the market now offers, for example, some elements of Directors and Officers liability combined with the PI coverage.
So while the market for PI insurance is growing in Germany, responding to the opportunity is not without challenges. Successful insurers will need to offer more than just good wordings. They will also require a clear understanding of clients’ risk profiles, underwriting guidelines appropriately tailored to an occurrence-based coverage, and sound reserving policies to mitigate long-tail exposures.
First published by Post magazine on 19th of March 2015.
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