The professional indemnity and directors & officers insurance sector has grown constantly since 2012 and is expected to continue the upward trend until at least 2019, according to the findings of a new report by London-based business intelligence company, Timetric.
Following a market slump in 2012, PI insurance premiums – including D&O insurance – increased by 9 percent in 2013 and rose by another 19.5 percent in 2014, said the report titled “Professional Indemnity and D&O Insurance in the UK – Key Trends and Opportunities to 2019,” which was published by Timetric’s UK FS Intelligence Center.
During 2014, UK PI premiums amounted to £1.17 billion ($1.8 billion) with growth expected to continue until 2019. Indeed, PI is forecast to generate £1.58 billion ($2.4 billion) in premiums by 2019, representing a compound annual growth rate (CAGR) of 5.86 percent during the four year period from 2015 to 2019, indicated the report’s executive summary.
The driver for this growth will be an expected increase in the number of professionals subject to compulsory PI requirements, as well as the expansion by insurers into sectors with voluntary insurance needs, including engineering, information technology and marketing, the report’s summary confirmed.
“Supportive trends in business population and confidence, directors’ rising public exposure through social media, and increasing regulatory activity are all set to push demand for professional indemnity and D&O policies,” said the report, noting that UK insurers also identified business opportunities in the thriving SME segment, where penetration is still at low levels.
From Fragmentation to Consolidation
The UK’s PI market is fragmented with the 10 largest professional indemnity insurers holding a combined market share of 76 percent in 2014, which is less than most UK Insurance lines.
While the PI market is one of the UK’s least concentrated insurance markets, “market power is now gradually shifting to the larger professional indemnity insurers like AIG and Hiscox,” said Steffen Mueller, financial services analyst at Timetric.
With a share of 18.5 percent, the report said that AIG was the clear market leader, followed by Hiscox, QBE, RSA and HCC. According to the report, the top five professional indemnity insurers increased their combined market share from 44.5 percent in 2012 to 52.8 percent in 2014.
“With Direct Line’s market entry this year, a new competitor is ready to increase capacity in the SME market and take some market share in the category,” commented Mueller.
“The competitive landscape is expected to favor consolidation through mergers and acquisitions, spurred to an extent by the implications of Solvency II,” the report continued.
“A merger between Zurich and [RSA] is currently under consideration, which would create a new big player in the sector. Regardless of this merger becoming reality, however, the next years will be marked by a trend towards concentration and consolidation,” Mueller went on to say.
Brokers Dominate; Direct Marketing Grows
Brokers continue to dominate distribution, but face a challenge from direct marketing, the Timetric report said, noting that insurers team up with specialty brokers to provide tailor-made cover for different industries.
However, the report said that modern technology is increasingly facilitating online transactions. “Paired with the market entry of Direct Line in 2015, the direct marketing channel is expected to play a significant role in the sale of professional indemnity cover to the UK’s small- and medium-sized enterprises (SMEs) over the coming years.”
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