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Navigating the insurance market for professional services: A conversation with Steven Loveday

As Managing Principal for Marsh’s FINPRO (Financial and Professional Services) practice, I look after large law firms and professional services firms.

09/08/2024 · 6 minute read

This interview was originally published on 26 March 2024 by King & Wood Mallesons (KWM) for their Insurance Pocketbook 2024.

With nearly 40 years of experience in the insurance industry Steven Loveday, Managing Principal, FINPRO (Financial and Professional Services) brings a wealth of knowledge and expertise to his role at Marsh. In this insightful interview for KWM’s Insurance Pocketbook 2024, Steven shares his perspective on the professional indemnity insurance market for solicitors, recent trends and developments in the industry, and his tips for managing risks.

You’ve worked at Marsh for close to 40 years! Tell us about your role, and how you got there.

As Managing Principal for Marsh’s FINPRO (Financial and Professional Services) practice, I look after large law firms and professional services firms. I deliver insurance products and solutions across a breadth of financial lines – including professional indemnity (PI), directors and officers (D&O), statutory liability, crime, environmental pollution liability (EPL) and cyber - in collaboration with our cyber placement and advisory teams.

In recent years we began to run the Marsh Australia lawyers practice group, which harnesses a wealth of insightful content shared by our lawyer practice group colleagues in London and New York. This allows us to offer rich insight and updates on market shifts to our law firm clients in Australia, who face similar issues.

I also support clients who have their programmes placed with reinsurers, and work closely with the alternative risk solutions team delivering for clients involved with captive insurance companies, as well as the claims team.

My broking career began in 1977 as an insurance clerk at Stenhouse Insurance brokers. After working at a number of smaller brokers I moved to Fenchurch Insurance brokers which was subsequently bought by Marsh Australia. I took this opportunity to move into Marsh’s FINPRO division as a broker and have enjoyed a variety of leadership roles in the years since.

How would you describe the current state of the professional indemnity insurance market for solicitors?

It really is a two-speed market. Small law firms are able to readily purchase affordable and appropriate levels of cover in Australia. For the larger law firms, the market is more challenging. There is less local capacity and they must access international markets. Many insurers are increasingly concerned with the severity of claims. As a result, they have not only reduced the capacity they provide for law firm PI programmes but also attach higher up in the programme, often above $50 million and in some cases $100 million.

There are also hard market conditions with increased premiums, restrictions around insurer capacity and greater underwriting scrutiny, and insurers have been particularly selective around the risks they underwrite.

How do you see the balance between adequate coverage and affordability for solicitors, and what strategies do you employ to strike that balance?

Our role as brokers is to ensure that the appropriate insurers are positioned into the client’s programme to help drive favourable long-term results.

For example, the selection of the insurer for the primary layer is not only important for the coverage and pricing they are willing to provide but also their ability to manage claims efficiently. When clients purchase large PI programmes and a number of layers are placed into the market to produce the necessary cost benefits, the selection of the lead insurers for each of those layers is a key consideration.

Other strategies include reviewing client risk management strategies and identifying any key risk areas through the lens of their client-base, including client claims history.

Have there been any recent notable changes to policy terms/coverage within the professional indemnity insurance market? What issues/areas are insurers seeking additional information?

The biggest change in terms of coverage or clarification of coverage in the past few years has been to provide affirmative cover or exclusions (as mandated by Lloyd’s of London) to clarify ­­ insurers’ position in the event of a claims issue or cyber event.

Insurers are also focusing heavily on the application of a sanctions exclusion with additional countries being added to the list, as well as seeking additional information around the adoption of generative AI, new technology and cyber risks.

Other emerging issues include the gratuitous use of the Financial Interest clause that is used in global PI programmes, and the application of anti-money laundering legislation.

Misinformation is also gaining prominence as a business risk. As Marsh flags in the latest Global Risks Report, which we co-author annually with the World Economic Forum: “To combat growing risks, governments are beginning to roll out new and evolving regulations to target both hosts and creators of online disinformation and illegal content.” It is too soon to gauge the likely effects of the Australian Labor Party’s draft Misinformation and Disinformation bill.

What recent key trends or developments in the professional indemnity insurance space do you find most impactful and what strategies do you adopt to deal with them?

The impact of generative AI, how lawyers are trained to use generative AI and how it impacts a firm’s resourcing are likely to be the biggest driver for the next few years. We predict that insurance coverage is likely to change due to generative AI, and risk control and governance will gain greater prominence. We are developing risk presentations for our clients in relation to evidencing compliance with generative AI risk control and governance and designing governance structures.

2023 has seen numerous high profile cyber-attacks on law firms. What recommendations do you have for insureds in relation to cyber risk management?

Many firms, including law firms consider a data breach as one of the highest risk issues they face - not only due to the impact of the breach but also due to the reputational damage that potentially results.

Data management, including the data management by third-party suppliers, are priority areas.

Well-developed incident response plans are now considered essential by insurers. A firm’s cyber risk management plan should prescribe multi-factor authentication, privileged access protocols, back-up and patching plans, and offensive and defensive detection mechanisms.

Do cyber-attacks have the potential to result in a D&O claim?

Yes, absolutely. We are seeing a number of D&O claims in other jurisdictions such as the US and UK where actions have been taken against directors following a cyber-attack. In Australia there have been a number of high-profile companies that have experienced data breaches and brand damage as a result of these attacks.

AI and ChatGPT was all the hype in 2023! Do you have any words of wisdom for insureds in relation to their use of AI?

There are numerous opportunities for law firms to benefit from adopting AI, including automating administrative tasks such as document searching, where it would boost efficiency and accuracy. However, it is paramount that firms have a clear and detailed policy in relation to AI use which addresses confidentiality, data privacy, security, and ethical implications, plus user training. Additionally, we recommend firms carry out ongoing monitoring and audits of AI systems to identify and address potential risks or issues.

And on a lighter note… where can we find you when you aren’t at Marsh?

You are likely to find me down at the beach, walking or swimming.

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Steven Loveday

Steven Loveday

Managing Principal, Financial and Professional Services

  • Australia

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