Friday 17 November 2023 - Thought Leadership

Changing risk profiles in Excess Layer PI market

By Lee Vine

Risk profiles in the Excess Layer Professional Indemnity market have changed significantly in recent years. In the SME sector specifically, the rising value of contracts is affecting both insurers and insureds while the influx of new capacity into the market is also having an impact on the sector’s dynamics.

Tokio Marine HCC has traditionally focused on providing Excess Layer PI cover that attaches above £5m, and continues to operate in this space with a broad appetite including but limited to  the construction sector, media, technology and miscellaneous professions.

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Impact of increasing contract values

In the post-COVID operating environment, the cost of materials and labour has increased significantly. This has had a major impact on the value of contracts in the construction sector.

Before 2020, for example, it was unusual for an SME contractor to have responsibility for a contract with a value in excess of £20m. This is not so rare in today’s market and demonstrates the scale of the potential exposures borne by firms.

In addition, the risk attached to these exposures has also increased in many cases following the Grenfell Tower fire in 2017. In light of this disaster and a number of other significant losses, the risk attached to habitable buildings has risen dramatically. This includes hotels, high-rise residential buildings, and student accommodation. The uptick in contract values and the increase in the underlying risk attached to many building types, has driven demand for Excess Layer PI cover in the SME sector. It has become a necessity, rather than a luxury, for many.

In the media industry we are seeing our clients being required to buy high limits of indemnity, particularly where they are working for large media conglomerates and regardless of actual contract size. As the media market consolidates it's exposure, we are seeing an uptick in requests for excess capacity usually above £5m.

In regard to the Technology sector, higher limits are often driven by contractual requirements. Large multinational companies, Local Authorities and Government Departments typically require £10m or even higher PI limits. This requirement can often impact the level of Cyber Liability that Insured's must carry also. 

Technology PI and Cyber wordings can vary significantly.  We have the expertise and appetite to follow most Technology Insurers for both PI and PI / Cyber blended policies and to help you find solutions for your clients.

Increasing demand

Typically, an SME contractor would have a PI cover limit of between £1m and £5m. In many instances, this is now insufficient and doesn’t meet the required levels that are being written into contracts.

Main contractors are also insisting their sub-contractors hold higher limits of insurance and this is further fuelling demand for Excess Layer PI policies.

While these evolving market dynamics are increasing the volume of Excess Layer PI cover sold in the market, it’s important for insurers to understand the nature of the contracts signed by their insureds and the cover offered by the primary layer insurer.

For example, after the Grenfell Tower fire a lot of insurers reviewed the cover they offered in relation to fire safety and combustibility risks. In recent years, more insurers have begun to revisit this and are now offering wider wordings.

Another good example is the way that media insurers manage the cyber exposure as part of a media liability cover. All markets differ here - some providing full third party cyber cover whereas others either cap their exposure by sub limiting cover for a data breach or exclude it in it's entirety. As a media market that has a healthy appetite for excess layer business, we need to be able to scrutinise the primary wording in order to adjust our excess layer cover where we feel it necessary.

Underwriters in the Excess Layer market must ensure they know exactly what the primary level insurer is covering and whether, for example, it’s limited or offers terms that bind those that follow. Getting this wrong, can quickly lead to large and unexpected losses. Similarly, brokers need to be sure the cover offered by the primary and excess layer policies dovetails neatly and offers continuity of cover for their clients.  Our dedicated and experienced underwriters are always available to discuss coverage and any terms being presented.

Our network of offices – London, Manchester, Birmingham and Bristol – means we have excellent regional representation and are well-placed to meet brokers and work through all the risk-specific issues at stake when arranging cover for clients.

In this fast-evolving sector, our in-person experience and expertise will help you place the most appropriate cover for your clients.

To find out more about our PI offering, click here.



The information contained in these articles and documents are believed to be accurate at the time of the date of issue, but no representation or warranty is given (express or implied) as to their accuracy, completeness or correctness. TMHCC accepts no liability whatsoever for any direct, indirect or consequential loss or damage arising in any way from any use of or reliance placed on this material for any purpose. The contents of these articles/documents are the copyright of Tokio Marine HCC. Nothing in these articles/documents constitutes advice, nor creates a contractual relationship.

Lee Vine

Senior Underwriter