Professional indemnity insurance and directors and officers (D&O) insurance has grown since 2012 and the trend is likely to continue.
Based on a report published by Timetric, the professional indemnity insurance category grew at a compound annual growth rate of 7.15% during 2010-14 and gross written premiums in the sector were worth £1.17bn at the end of 2014.
The online data provider said factors such as an increasing number of incorporated businesses, directors' rising public exposure through social media, and increasing regulatory activity and expansion in the accounting and solicitor professions, all contributed to further demand for professional indemnity and D&O policies.
The report said brokers were the main distribution channel for professional indemnity insurance, with the most recent example being the deal between AXA and Mapledown to provide the service to the construction industry.
But Timetric said brokers faced a challenge from direct marketing, which was expected to "play a significant role" in the sale of the product in the SME market.
Steffen Mueller, financial services analyst at Timetric, said: "With Direct Line's market entry this year, a new competitor is ready to increase capacity in the SME market and take some market share in the category."
According to the report, the top five professional indemnity insurers increased their combined market share from 44.5% in 2012 to 52.8% in 2014. With a share of 18.5%, AIG was the "clear market leader" in 2014, followed by Hiscox, QBE, RSA, and HCC.
Timetric said the market was "fragmented" but firms were likely to consolidate. Mueller said: "A merger between Zurich and Royal & Sun Alliance is currently under consideration, which would create a new big player in the sector. Regardless of this merger becoming reality, however, the next years will be marked by a trend towards concentration and consolidation."
Timetric said the sector would generate £1.5bn in premiums in 2019 due to the increase in the number of professionals subject to compulsory professional indemnity insurance requirements and insurers expanding into industries with voluntary insurance needs, such as engineering, information technology and marketing.