Is every insurer on your PI programme actually good for the claim?

Most of the effort at a professional indemnity renewal goes into the limit: is £5m enough, should we buy a layer above it, how does the premium compare with last year. That is the right conversation to have. But it quietly assumes something that deserves its own scrutiny — that whichever insurer sells you the cover will actually be there, solvent and able to pay, on the day a large claim is finally settled. For professional indemnity that day can be years after the policy was bought, because cover is written on a claims-made basis and the claims that test a limit are often the slow-burning ones.

For a larger firm the question is not academic, and it is not one question but several. A sizeable programme is rarely placed with a single insurer. It is usually built in layers: a primary policy up to a first figure, then one or more excess layers stacked on top to reach the total limit the firm wants. Each of those layers can sit with a different insurer, and the security of the whole programme is only as good as the weakest carrier in the stack — because a claim large enough to reach the upper layers is exactly the claim where you most need every insurer in the tower to pay.

What “security” actually means here

“Security” is the insurance word for the financial strength of the insurer — its ability to meet claims. Two things sit behind it. The first is regulation: an insurer carrying UK risk must be authorised by the Prudential Regulation Authority and regulated by the PRA and the Financial Conduct Authority, which means it is subject to capital and solvency rules designed to make sure it can pay what it owes. The second is an independent financial-strength rating. Agencies such as A.M. Best, S&P Global Ratings, Moody’s and Fitch publish opinions on an insurer’s ability to meet its obligations, expressed as a letter grade. An insurer that carries such a grade is “rated”; one that does not is “unrated”. Lloyd’s of London, through which a great deal of UK professional indemnity is written, carries market-level ratings from several of these agencies.

A rating is not a guarantee — it is an opinion, and opinions can be revised — but it is an independent, comparable signal of strength, and it is the single most useful piece of information you have about an insurer you will never meet and whose balance sheet you cannot read.

Why a layered programme multiplies the question

On a single-insurer policy, security is one decision. On a layered programme it is a decision for every layer, and the layers are not all equal. Primary cover for a well-regarded profession is competitively fought over by strong, rated insurers. The upper excess layers — the ones that only ever pay on the largest claims — are a different market. Capacity there can be thinner, and it is more often where less familiar, overseas or unrated carriers appear, precisely because the premium is smaller and the claims are rarer.

Excess layers are usually written on a “following form” basis, meaning they follow the terms of the policy beneath them. That keeps the wording consistent, but following form says nothing about whether the insurer on that layer can pay. If a claim is large enough to burn through the primary and into the top of the tower, a weak carrier sitting on the final layer is the difference between a claim settled in full and a shortfall the firm has to find itself — at the worst possible moment, when the loss is already at its largest.

Unrated is not the same as unsound

It is worth being fair about unrated capacity, because the honest position is more nuanced than “rated good, unrated bad”. An insurer can be unrated simply because it has chosen not to pay for a rating, or because it is a mutual or a structure that ratings are not designed for, while still being well-capitalised and perfectly able to pay. Some respected markets operate without a public rating. The problem with unrated capacity is not that it is automatically weak; it is that you cannot easily tell, and you lose the independent comparison a rating gives you.

So the test is not to refuse unrated insurers outright. It is to know when a programme contains them, to understand why, and to make a deliberate decision rather than discover after the fact that the top of the tower — or even the primary — rests on a carrier nobody checked. An unrated insurer offering a keen premium on an excess layer may be a sensible, considered choice; it should never be an accidental one.

What your regulator already requires — and where it stops

Several professions have security built into their rules, and it is a useful floor. Solicitors must buy their compulsory cover from a “qualifying insurer” — an insurer that has signed the Solicitors Regulation Authority’s agreement to provide cover on the minimum terms — and the SRA publishes the current list. Other regulated professions, such as RICS-regulated surveyors, set minimum policy requirements for the cover their members must hold. These regimes exist partly to protect clients from an insurer that cannot pay, and for firms within them they do real work.

But a regulator’s floor only reaches as far as the cover it mandates — typically the compulsory primary layer up to a set minimum limit. The excess layers a larger firm buys on top, to take its programme well above the regulatory minimum, often sit outside that framework entirely, placed in the open market where the security is whatever the firm and its broker accept. In other words, the part of the programme the regulator does not reach is frequently the part where security most needs checking. Meeting the minimum is not the same as having checked the whole tower.

The FSCS backstop, and its limits

There is a safety net. The Financial Services Compensation Scheme can step in when a UK-authorised insurer fails and cannot meet its claims, and the protection it offers for insurance is meaningful — strongest of all for compulsory classes of cover. For an eligible policyholder it can be the difference between a failed insurer and a paid claim.

It is a backstop, though, not a reason to relax about security, and it has edges worth knowing. Its protection generally depends on the insurer being UK-authorised; cover placed with an insurer authorised only overseas may fall outside it. Eligibility depends on the type of policyholder and the type of cover, and the scheme is designed to protect customers rather than to make large commercial programmes whole as a matter of course. Treat the FSCS as the floor beneath a failure, not as a substitute for placing the cover with sound insurers in the first place. The current detail of what it covers is published on the scheme’s own site, and it is worth confirming rather than assuming.

What a finance director or managing partner should check

None of this needs technical insurance knowledge to govern — only a few deliberate questions, asked by someone with a view of the whole programme. Ask your broker to set out, layer by layer, which insurer sits on each part of the tower and what its financial-strength rating is. Ask explicitly whether any capacity on the programme is unrated, and if so, why, and whether that is a considered choice. Confirm that each insurer is UK-authorised, or understand clearly where it is authorised if it is not, and what that means for the FSCS. Check that the compulsory layers meet your regulator’s requirements — and that the discretionary excess layers above them have been held to a standard the regulator does not impose. And ask the same questions again at renewal, because a rating can be downgraded and a layer can change hands between one year and the next.

The limit on your schedule is the headline. The security behind it is whether the headline is true. For a firm whose largest exposures would only ever be met by the upper reaches of its programme, the strength of the insurers on those layers is not a detail for the broker to worry about quietly — it is one of the few insurance questions that genuinely belongs in front of the board.

Frequently asked

Our broker placed the cover, so isn’t insurer security their job?
Your broker should advise on it, present the security of each layer, and flag anything unusual — that is a core part of the job. But the firm carries the consequences of a failed insurer, so security is worth understanding at your level rather than delegating entirely. A good broker will welcome the question and answer it layer by layer; being able to set out exactly who sits where, and why, is a fair test of whether a programme has been placed with care.

Should we simply refuse any unrated insurer?
Not necessarily. Unrated does not mean unsound — some well-capitalised markets operate without a public rating — but it does mean you lose the independent comparison a rating gives you. The sensible approach is to know when a programme includes unrated capacity, understand why it is there, and decide deliberately. An unrated carrier on an excess layer can be a reasonable, considered choice; what you want to avoid is finding one on the programme that nobody chose on purpose.

Doesn’t the FSCS mean our claim gets paid even if the insurer fails?
It may, and the protection is strongest for compulsory cover, but do not treat it as a reason to stop checking security. FSCS protection generally depends on the insurer being UK-authorised, and eligibility turns on the type of policyholder and cover. For a large commercial programme it is a backstop against the worst case, not a guarantee that every claim is met in full. Confirm the current detail on the scheme’s own site, and place the cover as though the safety net were not there.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This article is general information, not advice on a specific policy.