THE GOOD THE BAD AND THE UGLY – AS WE APPROACH 1ST OCTOBER WHAT REALLY IS GOING ON WITH SOLICITORS PROFESSIONAL INDEMNITY?
Insurance market cycles usually work in peaks and troughs and are sensitive to interest rates – when rates are high many write for volume so they can earn decent returns from the money they have banked. A newly established Insurer is stating that it will write lawyers business in the near future – it could be as early as next spring, or could be further away – but that ensures more capacity and allows some rate competitiveness which just might stimulate better premiums – for the right risks. Whatever the case, the current pricing structure for solicitors PII can’t and won’t continue indefinitely and there will be a downward correction at some stage.
At least two Insurers with significant market share have reduced their 15% commission provided to brokers on Solicitors business to just 5% so the broking market is, to a degree, sharing in your pain if you are a law firm. Some are charging fees in addition which is accepted practice provided that it is transparent.
Very few Insurers have made a profit from writing solicitors PI over recent times – most do it as a basket of wider products offered to the professions sector in general where solicitors is in the mix due to high premiums per Insured firm.
Looking ahead, some firms will not be doing quite so well this time next year with economic headwinds set to strengthen, however there may be little short term scope or ability to reduce PII premiums because the Insurer actually wants fewer risks with more premium per risk – so they are likely to stand their ground on rates for as long as they can. This means that the rate applying to your turnover (to calculate the premium) could still go up next year even though your income may have gone down.
The SRA minimum terms PII policy for solicitors is one of the widest in the UK Insurance market, and provides a significant protection to law firms, partly as a result of the need for a public safety net. Few realise however that there are a number of housekeeping rules that need to be followed in order to ensure that cover is maintained. If you are uncertain, ask your broker to explain.
For those firms who can’t get an offer of cover on run up to 1/10, we would say keep the faith, because the last thing an Insurer wants is to be stuck with a law firm going into run off, with complete lack of knowledge around what could flush out in the ensuing six years – they would do anything rather than go there – so continue to haggle and you may well get somewhere. Most Insurers will do what they can to prevent a law firm from going to the wall, but there is an economic limit to their largesse.
There are many good legal tech firms whose systems enable their clients to demonstrate security and compliance in their client activity, and law firms can capture such data to demonstrate to their Insurers of how their risk profile is improving. One such (other providers exist….) is Infotrack, who we know are able to provide real time client audit trails and collate activity around lines of business.
We have seen increasing numbers of Insurers seeking to recover excesses from partners and directors for claims from firms which have closed, As long as that continues, there will need to be a focus on the solicitor indemnity fund which provides support for claims beyond the six year run off period. At least one Insurer has a facility to step in if and when the indemnity fund is withdrawn.
At this time of year there are strategic opportunities to absorb law firms who are struggling to obtain cover for reasons that don’t relate to the quality of their work, and those who consider that their renewal terms are the straw that breaks the camels back, and decide to shut down. These opportunities require an ability to act quickly and undertake decent due diligence within a limited window, but they do exist.