Road to the regions

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Demand for professional indemnity cover is growing in the regions, as is the expertise of locally based brokers and insurers to address the buyers' needs. Rachel Gordon explores the potential effect on London players, opportunities for provincial novice brokers and increasing online offerings

Professional INDEMNITY is spreading its wings and becoming less London-centric. Insurers are opening offices in the regions and more brokers are looking to increase this business or even launch new divisions.

Bristol, Manchester and Edinburgh appear to be the real hotspots but, no matter where firms are based, there are signs that moving into PI could be a shrewd move. While the market is soft, many pundits feel it is almost at the bottom, suggesting rates will start to rise from 2009. Added to this, more PI cover is set to be available on I-market; while for those who want a taster, networks and wholesalers can still provide less experienced brokers with access to competitive products.

David Sawyer, portfolio manager for QBE PI, comments: "Datamonitor research shows the market is worth around £1.66bn and it should grow to around £2.4bn by 2010. This shows the potential. Companies are either buying more cover or are obtaining it for the first time. For example, if Home Information Packs happen this will mean far more estate agents buy cover. In addition, many companies working for local authorities find they are obliged to have their own insurance for £10m or they won't secure contracts."

Caerphilly-based broker Moorhouse is tipped to be seriously considering launching a PI operation, focusing both on mass-market volume business transacted largely online and a more bespoke service for bigger clients. Chairman Lyndon Wood is believed to be talking to a range of insurers about suitable systems and products, and says: "At this stage, all I can say is that this is something we are looking at very closely."

This may prove interesting or even a little unsettling for the many brokers and insurers across the River Severn in Bristol who see themselves as masters of the PI universe there. In February, when Hiscox moved into larger offices in Bristol, it claimed the city is second only to London in terms of its high concentration of insurance brokers with PI expertise - particularly in the area of accountancy. And other established insurers, such as QBE and Royal and Sun Alliance, agree that demand for business is high in the region with local brokers having strong expertise in the sector.

Fierce competition

Indeed, there are so many PI brokers in Bristol that 'desk-topping' is understood to be endemic - namely promising a potential customer that a cheaper quote can be found without first speaking to an underwriter. Arguably, the leading PI brokers in the area are Lockton, SBJ and Aon. Patrick Hearn, a director with Aon, moved to Bristol from London in 1984; he says the city is a vibrant and affluent area, although at times it can seem the market is almost "over-broked". He adds that this is a particular feature of Bristol commenting: "Apart from the larger firms, you also have smaller businesses, some of which stemmed from Alexander Forbes taking over AF Blackmore, which led to new firms setting up. The market is quite fragmented. There are some brokers who are going in with rates that are far too low, but we aren't - it has to be about quality and integrity. We believe a strong selling point is that we provide access to our claims and risk management professionals." Aon has around 10 PI professionals based in the city and works closely with local underwriters as well as the Lloyd's and London market.

It has also been rumoured that Lockton was due to considerably expand its Bristol office to handle mass volume business from the city. Earlier this year, a call centre in Manchester, which handled some PI business, was closed and rivals have claimed Lockton may move most of its smaller ticket business to Bristol from London. Although Lockton is understood to be on the verge of announcing a restructure with further investment in the regions, no information is currently available. However another source believes that volume business would still be handled from London, although some expansion at Bristol is also possible. In the meantime, CEO James Houlder, claims: "We're the largest PI broker in the South-west and provide cover and advice for all the professions. We're committed to offering the best service for clients of all sizes and have also invested in technology for this with Acturis, as well as supporting I-market."

PI is not just competitive in the regions for insurers and brokers; lawyers too need to keep on their toes. Beachcroft, CMS Cameron McKenna and Bond Pearce all have sizeable offices in Bristol, for example and Neil Franklin, associate with Bond Pearce, comments: "Bristol is the UK's second insurance city and typically local business can be viewed as also going along the M4 corridor to Swindon and Reading." Bond Pearce has recently expanded and now has around 300 employees based in Bristol.

In Mr Franklin's view, the top PI brokers in the city are regarded as Lockton and SBJ but he adds that smaller firms are also making their mark. "Lampiers and Brunel Professional Risks are among the niche players with good market knowledge." And he agrees that accountancy PI is one of the biggest sectors in the city. "Although it is mandatory, many firms are more concerned about litigation and want guidance on areas like the Companies Act."

Further north in Manchester, Paul Davison, partner with Eversheds, says: "Manchester is very buoyant in terms of its PI market. We have around 10 people specialising in the sector and are also doing a lot of business in Leeds. I see expansion and in particular growth in the local directors' and officers' liability market alongside PI, which will benefit brokers, insurers and solicitors alike."

Team poaching

Other big players in the provinces include Towergate, which has a specialist PI operation in Manchester, while PI specialist First City Partnership opened its first regional office in Manchester last September. Marsh also recently acquired a PI team from Aon, who will be based in its Edinburgh and Glasgow offices, while Aon says it will handle Scottish business from its Manchester office.

Certainly when Marsh hired the Aon team, it caused quite a stir in the Scottish market.

Stuart Middleton, regional underwriting manager in Hiscox's Glasgow office, comments: "You get more used to such moves in London, but I suppose Aon should also see it as flattering." He adds that talented PI brokers and underwriters are in high demand in Scotland. "You can quickly develop a reputation and profile and it would not surprise me if we see more poaching."

Although the nationals continue to dominate the PI scene, Mr Middleton says there are some strong regional firms and agrees that consolidation is leading to bigger books of PI business, which are attractive for regionally based insurers.

But with hard-hitters already out there in the regions, is it worth a novice broker giving PI a shot?

Aaron Devitt, director of professional and financial risks for RSA, says it certainly is. "You already have plenty of brokers with regional expertise and it is interesting to see some of the smaller insurers either move out to or expand their regional presence - I don't want to blow our own trumpet too much, but we are already there."

He also points out that while wholesalers will always have a place, his feeling is that more PI is being handled direct by high street brokers. "Some PI insurers have been active in targeting regional brokers. And, if you are an existing RSA broker, which almost all are, then you can use our PI facility even if you only place one case a year."

To help drive sales, he explains that RSA will also provide some brokers with training in PI. "If the business wants to adopt a client-focused approach then this could be appropriate and we would arrange it for them in stages so they can improve their skills. There are now more cases where a broker has consolidated and suddenly has a PI book of some size, with potential to grow. We are very positive about retail PI."

Steve Carroll, managing director for Markel UK, agrees that wholesalers are not the only route to market for inexperienced brokers. "It's feasible even for smaller brokers to have at least one member of staff who understands the business - the fact insurers, such as ourselves, have regional offices can also help if there is a knowledge gap. If a wholesaler is adding real expertise then fine, but if it is just a case of chasing more commission then they are not adding much."

So is there still a gap between London and the provinces? It would appear that the bulk of higher value PI continues to be placed within the capital and the top underwriters - including Lloyd's syndicates - remain based there. According to Mr Sawyer: "There are plenty of empowered brokers in the regions, but it is also fair to say that the average smaller commercial broker will not be as knowledgeable. However, there are some good wholesalers and networks out there which make it easy to place business, such as Cobra, The Broker Network, Senior Wright or Holmans."

In terms of niche PI, such as that designed for emerging professions, some question whether the smaller regional broker is ready to start dealing in this sector. Rob Jones, assistant vice president with underwriter Media/Professional Insurance, comments: "Talking to more brokers outside of the national firms is a goal for us. We deal with brokers outside London, but they are predominantly the regional offices of firms such as Aon, Marsh and Willis."

Media/Professional specialises in media, cyber and miscellaneous PI cover, such as that for IT consultants, and Mr Jones points out that many provincial firms will already be advising such local firms on other property and liability policies - so should take the opportunity to broaden their remit.

For his part, Mr Carroll says niche business is well within the provincial broker's reach: "We no longer have much of a manufacturing sector and it seems as if we have more and more consultants setting up. Even if they buy cover at a few hundred pounds a time, there is no reason why a local broker cannot provide the service." While Mr Houlder adds: "At Lockton we have a specialist media and technical practice and it makes sense to have this in London as it remains a more complicated area, so face to face meetings - whether with clients or underwriters - can be appropriate."

Lockton has its main PI HQ in London's Bevis Marks and those sitting in EC3 should not panic unnecessarily about being squeezed out by the players in the provinces. Andrew Wallin, who heads the PI team at London market intermediary and wholesaler Oxygen, says: "Larger brokers are always going to bounce some business out to the regions because it is cheaper. But higher value business is going to stay in London and, in our role as a wholesaler, it is also a benefit for our regional brokers that we are here, because we are close to the market."

In addition, the growth in online trading should benefit regional brokers who may be dealing with smaller cases and want to place these quickly. At the same time, the other, generic issue which all brokers have to face up to is whether insurers will place more business direct - and PI is no exception. As Mr Sawyer comments: "If you are looking at micro business then a broker needs efficient processes if they are going to be profitable. This is why we are seeing more development in online facilities. Like any other sector, brokers need to add value and be efficient. But you will always find that some clients at the smaller end will choose to buy direct."

Online business

Ace Europe could claim to be leading the online drive having been the first to launch PI on I-market last September, followed more recently by enhancements to that offering, as well as launching 'fully transactional websites' for UK brokers to provide online quotes, bind cover and issue policies direct with PI a core offering. E-commerce manager Mark Whitehead comments: "Brokers either go through I-market or can have the system on their sites, which is provided to clients. The broker then backs this up with advice and support. There is no credit risk to them."

And Mr Hearn comments: "There is an increasing amount of online business going on and we make sure we are up to speed, but are also wary. All businesses may want advice and if you are simply providing a web quote you are not fulfilling suitability obligations. I think increasingly brokers have to be about quality and one of our strongest selling points is providing clients with access to an in-house PI claims team."

Mr Hearn is not the only one who remains somewhat circumspect. "I'm not keen on putting business though an online system," says Mr Wallin. "They may be fine, but you need to do a proper comparison and give advice if you're to do a good job."

There seems little doubt there are some fine provincial brokers out there doing a sterling job providing PI advice to their clients. But there is no getting away from the fact that specialists exist for a reason - this class of business is more problematic and complex.

As one source concludes: "PI is a growing market, but it is not for those who have 'dumbed down'. There is danger for those brokers who think they can just move business to a cheaper provider yet are not properly aware of the client's history. In this class of business, claims occur on a claims-made basis, meaning if one happens there could be a dispute if the cover has been moved. I would recommend brokers make sure they have a clear understanding of the market - or they could risk getting claims against their own PI policies."

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