There are very few aspects of life which have not been touched by the impact of COVID-19 and the PI insurance market is no different. We have been reflecting on what trends we can expect to see in 2021.

The renewal process

As lawyers, we usually find that clients only talk to us about insurance when negotiating a contract and when a dispute arises, whether on the scope of cover under the policy or when a claim is made against them. The renewal process is usually the provenance of their broker.

In the current climate, we are hearing more from clients than ever before about their experiences of a difficult renewal process. Some clients face logistical difficulties in gathering underwriting information while they and some of their workforce continue to work remotely, which makes presentation of risks more time consuming.

It also reduces or removes the scope for face-to-face discussions and negotiations at renewal, which means clients need to adapt to a new way of communicating underwriting information to their brokers. Many are finding this to be a more time-consuming process than in previous years.

COVID-19 exclusions

A lot of our clients are anxious about whether they will have to accept coronavirus exclusions to both their own policies and the PII obligations of counterparties who they are entering into contracts with. There is a concern as to what the price and claim implications might be, particularly in terms of premiums, liability protection and providing additional underwriting information.

Aggregate policies

We are also seeing a shift away from cover most commonly being provided on an each and every basis, and it looks like aggregate policies are likely to be the norm going forward due to big increases in premiums for each and every cover - if this is available at all.

When appointing a professional from an employer’s perspective, it’s important to remember these policies are not project-specific and aggregate cover will apply to any claims that might be made against the holder in any one insurance year. That means aspects of aggregate cover like automatic and round-the-clock reinstatements are important (and indeed some employers are likely to insist on these if presented with an aggregate policy).

Contract specifics

We suspect there will be more discussion around the specifics of a holder’s PII when negotiating contracts going forward, and we will start to see more detailed drafting in the PII obligation about the basis of any aggregate cover as well as any restrictions or exclusions.

Where policy terms change at renewal, this may have consequences for parties in contract already and if you are a PII holder you should check the insurance terms of your existing contracts (including any collateral warranties) in the event of changes to your policy.

There may be obligations to notify counterparties of policy changes and specific consequences where a level or basis of cover specified in the contract can no longer be maintained. Wording in the PII provision which links the obligation to availability in the market at commercially reasonable rates and terms will be helpful in these circumstances.

Insurance claims

On the claims side, we have not yet seen any particular trends or impact from the pandemic. Experience from previous periods of economic uncertainty, and particularly the credit crisis in 2008/2009, tends to suggest that there will be a slight time lag before we see trends emerging in claims.

The big issue for many this year is likely to be the extent to which COVID-related losses are recoverable via a PII claim.

Much will depend on the factual circumstances and whether the work was done before or after the emergence of the pandemic. And for many a big worry will be whether those COVID-related losses are covered by their PII insurance, even if no specific exclusion clause is incorporated at renewal.

One thing is for sure - the PI insurance market is facing some significant changes which will no doubt bring yet more unexpected challenges for businesses.

If you’d like expert guidance on how to mitigate the impact we are here to help – please do not hesitate to get in touch.

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