Advice is something everyone needs occasionally and certainly, many of us are aware of it during this time of Covid-19, whether it’s being guided on ways to protect heath, on travel matters, or on the regulations as they affect areas regionally and nationally. There may be differing views when it comes to managing the pandemic, but there’s no doubt that advice is everywhere.

What’s more, advice is at the heart of professional indemnity (PI) insurance. Currently, with so much uncertainty and businesses potentially facing more litigation as a recession looms¹, having the right and sufficient cover in place is more important than ever.

The PI market can be particularly sensitive to change, such as changes in legislation or a sudden influx in claims. It’s a sector where a high level of claims expertise is required and where insurers need to be able to respond quickly to events. So, what is the current state of the PI sector and what are some of the factors influencing capacity and premiums?

However, no matter what the state of the market, PI remains a mandatory requirement for certain professions. Even where it’s not, many businesses are only too aware of the risks they face. Errors can be unavoidable and customer complaints can escalate into legal action. It’s not only the cost of mounting a legal defence which can cripple a business – a quality PI policy can provide invaluable support services to help a firm mitigate the impact of a damaging claim.

Even when not compulsory, most firms that provide advice and handle data will want PI protection; examples include PR and marketing firms, recruitment agencies, IT contractors and management consultants to name but a few.

Historically, the solicitors’ PI market has faced some distress, where capacity has been able to pull out with little notice and it’s often been hit by high levels of claims.

Insurance brokers have not traditionally been seen as a higher risk sector, but are now seemingly moving into this category following the FCA’s business interruption (BI) test case.

On 15 September, the High Court ruled that in certain cases, claimants could receive payments for Covid-19 related non-damage business interruption claims. The regulator has not yet managed to reach full agreement with all the insurers involved and the Court has now given its permission for the appeal to proceed direct to the Supreme Court.  The hearing will last 4 days from 16 November. This matter continues to be discussed and the view from certain insurers involved in the test case is that they do not believe their policies were ever designed to respond to a pandemic.

At present Insurers have taken a case by case view on whether their policy responds based on specific policy wording. Policyholders that have been disappointed at their claim being turned down for BI, may turn to their broker  to question whether they were sold the most appropriate policy for their business at the time. This may prompt a rise in indemnity claims against insurance brokers and may also attract the attention of some claims management companies.  Brokers are likely to robustly defend their position, but this may inadvertently bring focus on broker’ PI policies going forward.

These are not the easiest of times, but PI insurance plays a vital and enabling role for thousands of UK businesses. In a challenging market, knowledge of how the cover works is even more important.

Although some may view PI as a more complex type of insurance, its purpose is straightforward and indeed, highly practical. The more businesses can work with their brokers and insurers to ensure they have the right protection and manage their risks, the more they can continue to advise and serve their clients - and work towards a UK recovery.