The Lawyers Professional Liability (LPL) market has been undergoing an orderly correction since late 2018. The correction came after LPL buyers enjoyed a period (2006-2018) of downward movement in rates and premiums.

Several different but interconnected factors served as catalysts for the current correction including:

• The 2018 Lloyd’s “Performance Review” project, conceived to correct what Lloyd’s felt were chronically unprofitable underwriting categories, including LPL.
• The historic impact of natural disasters in 2017 and 2018, ending an extended period of profitability for the property and casualty business.
• An increase in the frequency of severe LPL claims.
• The macro-economic uncertainty presented by the pandemic, wars and a potential global recession.

These four main factors, among other peripheral market influences, resulted in LPL underwriters taking deliberate efforts to stabilize their platforms. These actions included both premium and retention increases, conservative underwriting, capacity reductions and, in some cases, withdrawal from the market altogether (e.g., Amlin, Axis US, Global Indemnity, Everest, Neon and Pioneer).

The LPL market in the second half of 2023 is mainly being fueled by these same factors, with underwriters focusing on premium adequacy and the increased risk of severe claims. Insurance buyers, however, have reason for optimism due to new capacity in the market (there have been several new entrants since early 2022) and the aggressive 2023 business goals that insurers have set for LPL underwriters. There is also a perception that the market correction that took place over the last 4-5 years has brought the market to a more stable position.

These market dynamics are reflected in the premium and rate results that we have seen on recent renewals, where average and median rate increases for primary layer renewals were in the low to mid-single digit range for firms with favorable underwriting profiles and with excess layers renewing in the mid to high single digit range for this same group of firms. Firms that have recently experienced serious claims are seeing rate increases that are reflective of that experience.

LPL underwriters continue to concentrate on familiar discussion points in underwriting meetings. These topics include inflation, the potential for a recession and the geopolitical challenges posed by the war in Ukraine and rising tension in the South China Sea. Recent disruptions in the Banking / Financial Institution industry (e.g., Silicon Valley Bank), the cryptocurrency markets (e.g., FTX) and the continued threat of systemic cybercrime, all set against the backdrop of potential global economic instability, has LPL underwriters concerned about contagion risk – the concept that an economic crisis from one market or region can spread to another quickly.

Going forward, we expect to see continued differentiation of terms and pricing by underwriters based upon law firm risk profiles and claim histories. Consequently, we recommend that firms remain in touch with their client service teams to keep abreast of topics of interest in the underwriting community to better prepare for discussions in underwriting meetings. Firms should also be aware of, and be prepared to discuss, any references made about them in the media. In an ever-evolving market, preparation is a key factor in helping to secure the most advantageous result.

The Accountants’ Professional Liability (APL) and Consultants’ Professional Liability (CPL) insurance markets involve many of the same U.S., London and Bermuda based insurers. Depending on the amount of business an insurer writes, some may have specialist teams for APL, with CPL likely residing with underwriting teams that concentrate on miscellaneous professional liability.

It is not uncommon for CPL policies to be written on a combined or blended basis with cyber, technology, errors & omission, and/or media liability. APL continues to be underwritten on a standalone basis but some firms rely on their APL for third party cyber risk and purchase separate first party cyber coverage.

Accounting firms provide a broad array of accounting/attest, tax, and advisory/consulting services to clients. Accounting firm advisory businesses, whose importance within individual firms continues to grow, are also direct competitors to consulting firms. However, from an insurance risk perspective, the accounting/attest and tax areas continue to be the areas of most concern and focus to APL insurers.

The term consulting firm is very broad and can encompass a wide array of firms and service lines, such as management consultants, actuarial, human resources, IT, real estate, and government.

Over the last two years, the general Property & Casualty insurance market has undergone significant rate hardening in response to high inflation and natural catastrophe claims, as well as financial market losses. Insurance buyers, particularly those in high-risk locations, are feeling the effects of these elevated cost trends.

2023 started favorably for cyber insurance, after two years of unprecedented premium increases. Ransomware attacks seemed to be slowing and insurers seemed confident that premiums were now sustainable.

For those firms with good claims experience, premiums have remained flat throughout 2023. Moreover, insurance capacity is plentiful, there is competition for good business, excess layer premiums have fallen, and coverage remains favorable. The key investments that brought professional services firms to the front of the pack in terms of cybersecurity appear to have paid off.

The “cyber spring” for insurance has been in sharp contrast to the reality of the cyber threat environment, which has deteriorated sharply:

• Ransomware – Aon’s data shows an increase far beyond anything seen since we started tracking data in Q1 2019.
• Software supply chain – the MOVEit vulnerability impacted 1,000+ corporations with over 60 million personal records stolen.
• Chainalysis reported payments to ransomware operators is approaching 2022’s total and is on track to reach $900 million by year end.
• The same report shows fewer ransoms being paid, but “big-game hunting” means frequency is down, but severity is up.

While the war for talent impacted businesses in all sectors of the economy, the associated risks represented an existential threat to professional services firms. For these firms, their people are their product. As a result, in 2023 firms continued to invest in both compensation and benefits. However, due to the year’s economic uncertainty, they also became more focused on doing so sustainably.

Professional service firms are placing increasing importance on benefit programs as a key component of their Total Rewards philosophy. Professionals are evaluating job opportunities based on programs such as adoption benefits, fertility benefits, caregiving leaves, and other programs that provide the candidate with a peak into the culture of firm.

In January, the Professional Services Practice at Aon released the 2023 U.S. Law Firm Medical and Pharmacy Benefit Benchmarking Report. The report found, among other things, that law firms are paying significantly more than other employers to deliver healthcare benefits of a similar value. While the differences are mostly attributable to demographics and geography, the report also outlined prudent steps that leaders can take to address these costs.

As U.S. states like Washington and California push forward with proposals to create public long-term care insurance programs, May 2023’s "How Professional Service Firms Can Help Their Employees and Partners Navigate Long-Term Care" detailed how firms can help their employees and partners prepare for these legislative changes and make prudent financial planning decisions for themselves and their families.

In the second half of the year, our human capital thought leadership focused on the financial stressors that will soon impact health and welfare benefit plans and the risk management strategies for firms that wish to make their plans more efficient and sustainable. For example, October’s “Weight Loss Drugs: A Point of View for Professional Service Firms in the U.S., UK, and Canada” details how professional services firms are responding to the recent growth in demand for weight loss drugs.

Financial efficiency and sustainability will likely become an even more salient topic in 2024. Aon’s Health Analytics practice predicts that U.S. employer healthcare costs will rise by 8.5% as medical providers push insurers for larger cost increases to cover for wages and supplies impacted by inflation in the economy at large. Fortunately, there are strategies professional service firms can implement that will curtail their spend and improve the overall health and wellbeing of their workforce.