Economic uncertainty, operational shocks and new technologies have all affected the stability of the professional indemnity market in recent years, while a hard market has softened unexpectedly in the last few months. David Adams looks at how insurers are adapting


It has been an eventful few years in the professional indemnity world. In the UK, the Grenfell Tower fire and its regulatory aftermath had a considerable impact on PI insurers, contributing to a hardening of the market, alongside other factors, including the inflationary period following the pandemic. The combination of these events increased some businesses’ costs dramatically, making PI claims more expensive and the market less profitable; and leading to some insurers withdrawing from the market altogether.

Subsequent improvements in underwriting have revived profitability, brought some insurers back into the fold and attracted some new entrants.

“With a lot of new capacity, we’re definitely seeing a softening in the market,” says Jonathan Reed, senior underwriting and claims executive at the International Underwriting Association, who also runs the IUA’s Professional Indemnity Forum. “A lot of that new capacity has been MGA-driven.”

Findings in Clyde & Co’s Professional Indemnity Report 2024, which focuses on the UK market, support this view. It shows rates fell sharply during the final quarter of 2024, and suggests that MGAs played a part. These new entrants are free from the legacy books insurers need to manage – PI claims can have a notoriously long tail – and their ability to offer significant discounts has helped to push rates down. Some 36 per cent of insurers and brokers surveyed by Clyde & Co said they expected the volume of PI business written through MGAs, binders or delegated authorities to increase by as much as five per cent over the next two years.

Respondents are expecting the next two years to be busy: 74 per cent said they expected the severity of PI claims to increase, while nine in ten expected claims volumes to rise.

One reason for this is the likely continuation of economic uncertainty. “There is a strong correlation between economic performance and claims against professional service firms,” notes Alicia Goosen, head of professional services at Aon. Recessions and downturns have often been associated with increases in fraud, whether perpetrated by staff working for professional services firms, or by third parties against those firms.

Evolving risks

Research commissioned in 2023 by Allianz Commercial identified some of the other risks likely to drive PI claims in markets around the world in subsequent years. It identified “very high” risks linked to the impact of building safety legislation and to cyber and data breach risks. “High” risks included an increase in high-profile litigation in some jurisdictions; and evolving regulatory risks for insureds.

Overall, Goosen does not believe recent years have seen any significant change in terms of the risks and professions covered. Allianz’s research included an analysis of 477 large PI claims (linked to losses of at least US$1 million). It identified the legal (30 per cent) and construction (27 per cent) sectors as the most likely to be involved.

Changes in the way some professional services firms operate has also had an impact on the market, according to the IUA’s Reed. He cites the example of legal firms starting to provide a wider range of consultancy and other services to their clients. This may mean insurers are being asked to cover risks that underwriters have not addressed before, or which may be outside the insurer’s usual risk appetite. “There are some quite difficult conversations going on about managing those risks,” he adds.

Clyde & Co’s research suggests that environmental, social and governance considerations are also influencing PI underwriting more than in the past. It found an expectation among respondents “that strong ESG credentials [within an insured] could potentially yield underwriting benefits, as they are indicative of a firm’s serious approach to risk management”.

Indeed, around 65 per cent of the UK-based respondents to its survey believe ESG considerations now impact underwriting of PI risks “to some extent”. A further ten per cent say these factors have a “substantial” impact. However, the significance of ESG varies by market, as this divisive topic is handled in distinct ways in different jurisdictions.

This is just one of many issues facing insurers and brokers writing business for clients operating in multiple jurisdictions. As an example, Reed points to the increased demand for professionals supporting construction projects in the Middle East, such as architects, consultants, project managers, surveyors, lawyers and accountants. “That comes with a new regulatory environment, and a new legal environment,” he explains. “The way different regulatory environments manage risks can be very different.” In addition to ESG, or climate risks, this might also be true for the way regulators address the development of AI technologies.

AI meets PI

AI is already altering the way many professional services firms operate. Respondents to the Clyde & Co research were asked how growing use of AI in professional services firms will affect the risks faced by businesses. Some 72 per cent thought it would increase risks, including those linked to inaccurate or false information, or to data breaches.

“Currently insurers are keeping a watching brief on this,” Goosen notes. “There are a wide variety of potential issues – [AI] hallucinations, copyright, confidentiality – that could create issues in the future.”

Reed perceives that professional services firms, regulators and insurers themselves are all seeking to find a balance between exploiting the capabilities of AI, and managing the risks associated with it.

“As long as you view it as a tool you can use to do your job more efficiently, then I think insurers are very comfortable and will ask the right questions to ascertain the risk of using it,” he notes. “Where you’re getting into higher risks is where you’re using it to replace services. That suggests you haven’t got a human in the loop providing oversight.”

Meanwhile, insurers are also trying to work out which AI-powered products are most likely to be used by large numbers of insureds in specific sectors, which could eventually lead to aggregated PI claims. More generally, the need to address cyber and other technology-related risks has led to some broadening of PI coverage in recent years, with affirmative cyber / tech E&O coverages being added to wordings, and older standard exclusions narrowed to accommodate such changes. Another significant development that Reed anticipates may have an impact on PI requirements in the coming years will be further efforts made by regulators and policymakers to increase the overall availability and accessibility of professional advice for consumers.

“That will increase demand for PI cover, but also [increase] risks,” he says. “Regulators are very keen to ensure that consumers are protected, to maintain the reputation of their industries, and confidence in advice given.”

One final theme in the PI market in recent years has been ongoing claims inflation. A contributing factor has been the use of litigation funding, Reed suggests. “It’s going to contribute a huge amount to the cost of insurance in any space that involves litigation,” he says. “The amounts involved can be astronomical. It does improve access to justice, which is a positive for society, but there is a knock-on effect for the insurance industry. And if the cost of PI insurance goes up, that’s more expensive for law firms, so the cost of their services goes up, so it’s more expensive for the end user.”

The Civil Justice Council is currently working on a review of litigation funding, convened in 2024 and due to publish a full report shortly. This will set out recommendations for reform, possibly including proposals for regulation. Yet, in the face of all of these challenges and an ever-expanding range of risks, PI markets continue to be largely healthy and competitive.

“The PI market is in a really good place, but there are new and emerging risks coming down the track,” Reed says. “Making sure that insurers, brokers, insureds and regulators work together to understand these risks, and develop risk management that helps, will be vital to ensuring that [clients] aren’t impacted negatively.”



This article was published in the Q2 2025 issue of CIR Magazine.

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