Although media and IT are comparatively new sectors for the professional liability market to contend with, work must be done to meet their needs, according to experts at a recent Post Magazine roundtable
Securing high levels of take-up in sectors where professional indemnity insurance is non-compulsory will always present the industry with challenges, as cover has to be actively sold rather than bought. Yet this does not mean that such professionals do not face real liabilities and exposure to claims from third parties in the modern business world, especially in the fast growing IT and media sectors.
Therefore, Post Magazine, in conjunction with HCC International Insurance Company, gathered together a range of experts to debate the economic importance of these industries and the issues insurers and brokers are encountering when trying to convince them of the need for professional liability cover.
Tony Browne, managing director of the PI division at HCCI, kicked off the discussion by focusing on one key difficulty: "IT and media are relatively new professions when compared to architects, for example, and historically there has not been a great deal of pressure on them to buy PI. Trying to persuade them that they need it is proving more difficult than in traditional classes, where such cover is either compulsory or as good as."
Robert Goldhawk, senior underwriter in the PI division at HCCI, agreed: "We recently conducted a survey that found 42% of UK IT companies with turnover of less than £20m don't purchase cover. This is partly because they feel they have no need for it, and that their in-house risk management is sufficient to cope with the risks they face.
"The main reason they don't buy, however, is because there is very little insistence on insurance cover from the companies they deal with."
Graeme Newman, director at DRS Insurance Services, suggested this could be changing: "The people that come to us are generally looking for insurance because a contract they are negotiating insists they are covered. However, businesses often spend vast amounts of money on legal fees when negotiating a contract but without the appropriate insurance, the carefully drafted warranty and indemnity provisions can prove to be useless."
He added that cultural issues exist as well: "Many of these companies weren't around five years' ago. If a small business buys a basic package from a broker and then finds its turnover has gone from zero to £10m in five years, its broker will quite rightly suggest professional liability cover - but the broker will find it a difficult sell because it's expensive and the company isn't used to purchasing that kind of insurance."
Chris Cotterell, director of Safeonline, said that a second hurdle the insurance industry must surmount relates to the complexity of the markets its clients are dealing with. "Brokers who have direct access to clients have to understand the product they are selling and the risks associated with companies in these sectors - it's ongoing."
Mr Goldhawk responded: "Many brokers don't feel comfortable with the insurance product in these industries. They are happy dealing with the traditional professions because they understand how they work but IT and media organisations tend to be more fragmented businesses."
As a specialist PI broker, Glenn Gostling, director at Senior Wright Indemnity, said: "To be able to effectively sell insurance to these markets, a broker has to speak the IT and media industries' language. That's difficult for the average broker because these sectors are so diversified."
So what advice did the panel impart to ensure brokers get to grips with these 'new' professions?
Mr Goldhawk said the first thing to do is simplify the language used in policies. "We need to write our wordings in plain English. There is a perception that IT and media are new industries - they are not. Brokers may understand the manufacturing industry but it has been in decline for years. At the same time, the IT and media sectors have seen phenomenal growth."
While the panel agreed that the onus is on the insurance industry to inform such professionals of the importance of liability insurance, Mr Gostling asserted that mainstream brokers are reluctant to try and place PI because they do not understand the product. "Policy wordings are complex, and claims information on media and IT is not easily at hand, meaning it's difficult for brokers to sell this product effectively."
Graham Hardman, senior underwriter at Media Professional Insurance, added: "If brokers and underwriters worked closer together and combined their knowledge and expertise, they would gain far greater market infiltration."
One problem seen to be hampering take-up was the use of broad proposal forms, which runs the risk of clients being put off by irrelevant questions (see p21). Another related to situations where companies are actively seeking insurance as part of a pre-condition of a contract with a major organisation.
Mark Kimber, managing director of media broker PIMS-SCA, said: "Quite regularly, the likes of Coca Cola will ask an IT or media specialist to assume all kinds of liabilities under the contract, and that means the insurance policy won't work at all. I find it hard to persuade insurers to get involved in contract upgrading."
He continued: "It's not my client's fault that he has been landed with a big contract. He wants to move up the ladder with regard to who he is working with and is frustrated in his attempts to do so because he's not covered. PI insurance isn't the norm in these industries - so a professional outfit could lose business if they pay out for cover, thus increasing their fee."
Paul Castellani, a solicitor at Eversheds, suggested a possible answer: "The underwriter or insured could pay a lawyer a fixed fee to look at the terms of business that a large corporate client is offering to a media professional. This would enable them to assess whether the limitations of liability/exclusion clauses are reasonable."
Promoting the benefits of insurance, Mr Newman pointed out how the threat to UK IT companies from offshore low-cost software developers can be diminished by insurance. "The advantage for our software developers is that they are properly capitalised businesses operating in proper jurisdictions where everybody understands the law. UK software companies can use insurance as an added competitive advantage in their sales pitches; should their clients need to make a claim their policies will respond, unlike their offshore competitors who will most likely disappear in the event of a major loss, leaving their end-client without any recourse."
He warned that the only way IT and media companies are going to hear this message is if it comes from bodies outside of the industry.
"These companies know insurers and brokers are bound to tell them about claims and insurance but if the education comes from external bodies, such as trade organsations and lawyers, and took the form of a risk management discussion instead then they would get the idea. Essentially, the desire to obtain insurance has to come from clients."
Mr Castellani said that although case law in the IT sector is underdeveloped, there was a significant court case a few years ago between ICL and Co-op. This illustrated the difficulties that arise where there is a great deal of negotiation on both sides but no actual binding contract between the parties. "Another example of problems inherent in large IT contracts is where the contract is negotiated by high-profile individuals in both organisations but implementation is left to people lower down the managerial chain who have to sign off when certain parts of contract had been completed. Claims can arise where there is a discrepancy between what has been signed off and what the intentions of the parties were when the deal was signed."
Mr Newman then warned: "We are on an economic upswing at the moment but when the economy slumps we will see more claims as companies won't be able to simply write-off IT disasters as they sometimes do at the moment."
Mr Castellani responded: "In professional negligence, you need to show a reasonable body of opinion that the defendant has fallen below. There is plenty of case law with regard to the traditional professions, such as accountants and surveyors, but the benchmark for an IT consultant or media professional in tort has not really been set. The first precedent may start a flood of later claims as the benchmark will have been established."
Mr Goldhawk added that there are far more court cases in the media sector than in IT. "Media companies are operating to tight deadlines and decisions have to be made in-house, and that's where mistakes come from. If they have a sensible approach to risk management, seek external legal advice if they can't handle a contract in-house and meet their targets once the contract has been signed, then they have little to fear."
He reasoned: "Insurance is partly there to protect the reputation of the insured, which is of paramount importance in the media sector."
So what should insurers and brokers be doing to keep up to date with these industries?
Mr Browne suggested insurers must understand these industries and provide the cover that companies are looking for - rather than offering standardised policies that traditionally do not work. "Back in the 1980s we knew that pure negligence policies did not work for the media industry. They certainly worked for insurers, as only rarely would a successful claim be made under the cover, which relied on a third-party claim being made for damages incurred as a result of an insured's negligence. In reality, with both media and IT, client relationships are essential, and they will do everything they can to resolve issues before we get to the damages stage either by rectifying the problem, providing a credit towards the next job or waiving fees.
"It wasn't until we started introducing 'in-house' first party cover for rectification and irrecoverable fees that these companies became interested in what we had to offer. This helps with the selling and educating of such clients."
Mr Kimber said that compared to the media sector, IT companies are 10 years behind when it comes to awareness of the benefits of insurance: "Media companies know about coverage, and they have established associations giving them advice. It's the smaller IT outfits that are unaware of the cover available but someone will come up with wordings that are meaningful to IT specialists, just as in the media sector in 1980s."
Mr Castellani added: "I wonder whether the industry is missing a trick by marketing these policies as PI policies because the misconception is that the policy will only respond to a third-party claim. The actual name 'PI' might be putting people off who otherwise might be interested if they knew the full extent of it the cover."
This prompted Mr Goldhawk to conclude: "We have to demystify our own policies. IT and media are major drivers of the economy and we can't ignore them."
Chair: Lynn Rouse deputy editor, Post Magazine
Tony Browne managing director, PI division, HCCI
Paul Castellani associate, solicitor advocate, Eversheds
Chris Cotterell director, Safeonline
Robert Goldhawk senior underwriter, PI division, HCCI
Glenn Gostling director, Senior Wright
Graham Hardman senior underwriter, Media Professional Insurance
Mark Kimber managing director, PIMS-SCA
Graeme Newman director, DRS Insurance Services.
Zurich disappointed in new #discountrate. David Nichols, Ch Claims Officer: "The failure to change the discount rate to a balanced level will only serve to increase the cost and, therefore, affordability of certain types of insurance - especially for higher risk customers." pic.twitter.com/ac1CfBzfxX— Zurich Insurance UK (@ZurichInsUK) July 15, 2019
- Revealed: Leaked emails show Ecclesiastical staff using 'callous' language over child abuse claims
- 30,000 Alpha policyholders to be moved to new insurer
- Analysis: Mitigating the risk of sexual harrassment in the workplace
- Insurers attack 'misleading and wholly disingenuous' discount rate impact assessment
- GRP buys Lancashire-based broker
- Aviva's Neos hopes to double UK customer base by year end
- Half of industry growth over next five years to be driven by M&A, say insurers