Where is the UK PI market heading in 2023?

1. Where do you think UK PI market is heading in 2023?

An interesting question. After the hard market years of 2019 and 2020 (made worse by the pandemic) and 2021 the UK PI market has seen signs of significant softening in the last two Quarters of 2022. This has mainly been within the SME sectors albeit there has been more competition in the larger mid-size sectors especially Excess of Loss/Cat markets where softening usually first starts when a cycle changes. Softening usually then starts with broadening of coverage followed by premium pricing reductions.

This year we have seen inflationary pressures affect the cost defence litigation especially within the construction sectors where the cost of raw materials and labour costs have risen dramatically, this has made insurers review upwards their initial claims reserving.

Global interest rates have shot up since the summer, few would have foreseen base rates move north at the pace they have, with more rate rises forecast in 2023 to try to dampen inflation. Interest rate rises will have an adverse effect on employment. Commercial insurance policyholders will see their margins pinched and will expect their PI broker to search the market to provide fair value at renewal in 2023.   It is interesting that the equity markets have stayed pretty much flat over the past few years and have bounced back after the initial drop in equity prices in the spring of 2020.

2. How are these market conditions likely to impact new entrants to the market?

Some new entrants to the market in 2023 will not have the legacy tail that current insurers live with, so there is a significant chance that there might be a “dash for cash” where new entrants will undercut existing market pricing with the logic that they can sit on cash for some years as their liability tails lengthens. Negligence claims can take up to five years to settle/close. Complex claims can take even longer with the costs of mediation and eventually litigation in the Courts. Investment income will become an important tool in return on capital.

Lloyd’s of London has posted some attractive numbers recently so the worst underwriting years of 2016, 2017 and 2018 are clearly behind the market now.

3. What would the impact of a prolonged economic recession be on the development of this market?

Should the UK suffer from a prolonged recession, history tells us that negligent litigation follows but there is usually a time lag before the tail catches up with the dog. At MGB we monitor claims triangulations closely. So as far as MGB is concerned, we see nothing unusual now.

4. Where does trading in the PI market stand going into 2023?

The Lloyd’s & London marketplace is back to pre-pandemic normal trading (face-to-face) and the market’s 334-year-old history is getting back to some form of normality. The frozen marketplace of 2020 and 2021 is over as we see people coming together again to discuss risk transfer.

5. What changes can policyholders coming to the market expect to see?

Policyholders who come to the market and purchase Cat towers of £100 million to £200 million protection are unlikely to see much price change in the market but there will be competition at SME firms where there is Primary capacity competition and abundance of Excess of Loss capacity.

With two or three profitable underwriting years behind us, it is hard to see why the UK PI market would not turn a softer in 2023 but one thing we can be certain of is the economic uncertainty we all face.

At MGB, we do everything we can to keep our customers informed on all market developments and MGB remains a leading PI market maker.

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