The professional indemnity insurance market is reported to be as ‘soft’ (cheap) now as it has been for several years, with premiums in steady decline since 2003. Giving a RIBA business masterclasses on risk management, PI consultant Roger Flaxman said that the industry consensus is that 2007 PII rates are likely to fall again next year by up to 15%.

A traditional indicator of PII premium directions is the solicitors’ market, which tends to set the pace for other sectors; the market expectation here is for general reductions of up to 20% across the profession.

For the time being the PII market is flush with money looking to underwrite insurance risk, so competition is fierce and premiums are falling. The big question is when will the PII market turn – when insurance markets do turn the corrections can often be rapid.

Flaxman reports that the majority of PII underwriters already believe that the time has come to increase prices, which are low when set against rising levels of claims. However no-one wants to be the first to make the move.

There is also increasing evidence that PII service is suffering as premiums continue to be slashed to acquire market share, leaving architects’ claims resisted by insurers and in some case rejected altogether.

As a risk management and PII consultant, Flaxman argues that the best strategy for practices is to seek specialist advice to find the best combination of broker and insurer to meet a practice’s needs. There are currently 38 insurers specialising in PII in the UK and some 25 firms of specialist brokers. It is quite possible, argues Flaxman, for a practice to take advantage of a soft market to manage future costs when premiums will inevitably rise.

An independent PII consultant can also provide an assessment of the ‘risk gap’ faced by a practice, particularly when it is considering changing insurers, and how this can be reduced by the best choice of insurance deal. As Flaxman points out, the secret of effective PII cover is not found in the description of what a policy covers, but in exclusions and restrictions that might not be explicit.

Flaxman Partners’ latest professional indemnity insurance market report is at http://www.flaxmanpartners.co.uk/main/services.php?dbcontent=Indemnity_Insurance