Post Europe: Professional indemnity – the growth market

Across ten major countries in Europe - namely, Belgium, France, Germany, Italy, Netherlands, Poland, Spain, Sweden, Switzerland and the UK - professional indemnity insurance was worth around €5.81bn in 2010 in terms of gross written premiums and could increase to a value of up to €7bn by 2014.

It is estimated to have risen from approximately €5.17bn in 2006 with growth chalked up in all countries other than the UK, which accounted for around €1.59bn of the total for 2010. Moreover, when broken down by professional sector, enterprises in the field of medicine, dentistry and other healthcare activities are believed to have paid in excess of €2bn of the pan-European market total in 2010, making this the largest single category.

Potential market
These are some of the headline findings from a research study on the subject of professional indemnity insurance in Europe completed recently by Finaccord, a financial market research consultancy. The report also verified that across the ten countries, there are over six million enterprises potentially eligible for professional indemnity insurance although less than a half of these have actually taken out cover given that there are approximately 2.69 million policies in force in total. For some, holding professional indemnity cover is compulsory in order to exercise their profession while for others, it is optional.

However, increasing take-up rates among those for which it is often not obligatory will be one of the drivers of the market in future, notably in the IT, management and financial consulting sector, which is the largest segment with 1.45 million insurable enterprises in total.

"Medicine, dentistry and other healthcare activities are believed to have paid in excess of €2bn."

Association strengths
One of the main means by which enterprises acquire professional indemnity cover is via affinity schemes set up by professional associations. Hence, as a part of its research, 1 100 associations across Europe were surveyed and 430 (39%) had established such a scheme. The countries in which such schemes are most commonly in evidence are the UK (with a provision rate among professional associations of 57%), Germany (52%) and Italy (48%) while they are least widespread in Poland (18%), Spain (27%) and the Netherlands (27%).

However, an important footnote to these figures is that they relate only to affinity programs operating at a national level. In some countries, most notably in Germany and Spain, the membership bodies for some professions are organised at a regional or local level and it is often these that are responsible for organising professional indemnity cover on behalf of members. For example, in Spain, this applies to many of the colegios oficiales representing traditional professions such as architects, doctors, engineers and lawyers.

Low partnership share
In terms of their revenues, Aon and Marsh are by far the largest commercial non-life insurance brokers in Europe and the research indicates they are also the leading brokers of affinity programs for professional indemnity insurance in Europe in terms of their number of partnerships with professional associations.

However, their overall share of these partnerships is low at 7.9% (34) in the case of Aon (including its UNITA subsidiary in Germany) and 3.7% (16) for Marsh. Thereafter, affinity schemes are accounted for primarily by brokers with a focus on just one national market and around 150 in total have involvement in this arena.

"An important footnote to these figures is that they relate only to affinity programs operating at a national level."

Fragmented picture
In the light of the specialised nature of the activity, the generally fragmented picture is, perhaps, unsurprising. By necessity, many commercial insurance brokers are specialists and professional associations are most likely choose brokers with a detailed understanding of the particular risks faced by their members to run their affinity schemes.

The competition to underwrite affinity programs for professional indemnity insurance is also fragmented albeit there are some identifiable market leaders in certain countries such as Axa in France, HDI-Gerling in Germany, Achmea in the Netherlands and Mapfre in Spain.

Mutual market
Moreover, a number of insurers underwrite professional indemnity risks via affinity schemes in several European countries including Chartis, ERGO, Generali, Hiscox, Hyperion Insurance Group, Zurich and, of course, Lloyd's of London. Also in evidence are a handful of mutual or quasi-mutual entities such as La Caisse de Garantie des Administrateurs Judiciaires et des Mandataires Judiciaires for bailiffs in France and the Medical Defence Union for doctors in the UK.

Finaccord's report also predicts how the market will develop across ten distinct professional categories: accountancy and finance; architecture and engineering; broadcasting and publishing; complementary medicine; estate agency and property; IT, management and financial consulting; legal services; marketing; medicine, dentistry and other healthcare activities; and other professional sectors. Specifically, it anticipates growth across all ten sectors ranging from a low of 2.9% as an annual average - in the case of the accountancy and finance segment - to a high of 6% - in the field of medicine, dentistry and other healthcare activities.

"The competition to underwrite affinity programs for professional indemnity insurance is also fragmented."

Rising negligence
In fact, the cost of medical negligence claims is rising more rapidly than the cost of claims for most other types of professional error across Europe, and this is the main reason for the high growth rate forecast for the sector of medicine, dentistry and other healthcare activities.

This difference underlines how professional indemnity insurance in Europe is a complex set of markets rather than a single one, with issues specific to each country, such as insurance pools in the Netherlands or the growing number of solicitors unable to buy cover in the UK, or to professional categories, such as single project insurance in the architecture and engineering segment.

Momentum to rates
Overall, the prediction is that the market for professional indemnity insurance in the ten countries could increase to a value of around €7bn by 2014. Excess capacity and troubled economies have limited growth in recent years but increasing claims in certain areas plus an improvement in national economies should provide some momentum to rates in future.

For example, in the UK, prices in property-related sectors - architecture and engineering plus estate agency and property - are expected to recover some of the ground lost since 2006, although not all. Furthermore, in Italy, where many professions are not required to take out this type of insurance, growth may derive from future regulatory change, anticipated by a draft law of October 2010, to make professional indemnity insurance compulsory for a wider range of activities.

Alan Leach is a director at Finaccord