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Market Update
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Professional Indemnity - International
Printable Version
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Brace Yourselves!
With professional indemnity insurance claims expected to surge over the next year or two,
Lockton offers some practical tips for weathering the storm.
The current turmoil in capital and credit markets has brought to the fore
the deficiencies in a number of institutes’ lending criteria, where previously,
loans had been given at higher multiples of earnings or on more speculative
investments, such as "buy-to-let" or "off-plan" purchases.
In a rising market, there are always a number of fraudsters who will try to
take advantage of the less stringent lending requirements by using gullible
professionals. The crime is relatively easy to perpetrate. Also, a rising market
will hide a number of fraudulent transactions.
We have now seen a decrease in property prices, coupled with a reluctance
by the banks to lend to other banks. This has had the effect of the lenders
looking more closely at their own books of business and the alleged security
they have over the properties.
Lenders can easily see what the house market prices are and their lending
liability. The moment the two are out of kilter, lenders will immediately start a
chain reaction of events to secure their lending. It is at this juncture, that they
will point the finger at their professional advisors, solicitors, valuers, etc., for
negligent advice, and look to seek financial redress.
Harder economic times have consistently brought about a corresponding increase in professional indemnity (PI) exposures.
Equally, in a falling market, fraudulent transactions, which had previously been covered up by the increased value in the
property, will now become apparent, and financial institutions will be examining all facets of the transaction.
But how do you ensure that you stay on the right side of your insurers during these testing times, particularly when you need
to rely upon them more than ever? One of the main pitfalls for professionals has always been the decision whether to notify
insurers about a particular problem, or not.
The traditional advice has always been "if in doubt, notify," but the better approach still is to call upon your PI broker team
for guidance and advice in these initial stages.
With PI claims set to rise generally and soon, now is the best time to be looking at cultural and process issues within your
organisation.
Openness and understanding is crucial: The people in your business need to be confident about declaring a PI problem to
management when it first surfaces.
Take stock and try to stay ahead of the claims wave: If PI complaints emerge from expected quarters, their impact will
be less. Your people should be encouraged to mention problem jobs, now, as part of a firm-wide review.
Hold your horses: Resist the temptation to fire off a stinging rebuttal (or worse, any mea culpa reply) to a disgruntled
complainant. Your PI insurance team are the experts on this score. Try to allow them the room to take the strain on your
behalf.
Be candid in your overview: It will be extremely helpful for your PI team to have as detailed a "point-by-point"
commentary as you can muster about the claim, as soon as possible.
Risk management should be both proactive and reactive: Look at any claims or complaints that may previously have
been brought against the firm. Try to understand why and what could have been done to prevent them.
If the claims climate really does darken over the next year or two, help and support on all these issues should be available from
your PI insurance team.
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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Ted Langer
Executive Director,
National Head of Professions Claims
London, U.K.
Tel: 011 44.20.7933.2837
E-mail: Ted.Langer@uk.lockton.com |
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Nik Carle
Financial and Professional Risks,
Browne Jacobson, LLP
London, U.K.
E-mail: ncarle@brownejacobson.com |
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