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Regular

posted 12 Aug 2009 in Volume 3 Issue 6

As the insurance market cycle has turned from benign to adverse, many firms have come under significant financial pressure. Yet, last year, for the majority of firms, renewal proceeded smoothly.

The market hardening has so far been specific to particular segments – to be small and a conveyancer is to be at risk. Professional indemnity insurance (PII) represents the third largest regular expense for many law firms, behind only wages and office rental. Last year, the difficulties in obtaining PII at a reasonable cost, combined with a downturn in business, left some firms with little choice but to close down. This year’s annual PII renewal exercise is likely to be just as difficult.

The Law Society expects premiums to rise to cover insurers’ increased number of claims and assigned risks pool contributions. In an effort to limit future exposure to these claims, insurers are also likely to be more selective in their provision of quotes.

Following last year’s difficulties, the Law Society consulted widely to gain a full picture of the PII market. We used this information to develop three key measures to help our members to alleviate the difficulties for future renewal exercises.

The first is to provide solicitors with more information and guidance to improve their prospects of obtaining PII at a reasonable price. We published a detailed practice note in April 2009 to explain the market and how best to approach the renewal period. We reinforced these messages through a series of 12 free regional seminars and a webinar. The series was run in conjunction with broking firm Prime Professions and gave members the opportunity to ask questions and receive personalised advice from professionals.

The second measure is to work with insurers and brokers to establish appropriate standards of conduct. Some solicitors complained last year about receiving poor service from their broker or insurer, including late notification of significant premium increases or refusals to quote. This placed firms in the predicament of having to accept an inflated premium or apply for more quotes just before the renewal deadline.

We intend to publish a model retainer letter that solicitors could use when seeking to engage a broker. The letter would set out the service levels that solicitors should be entitled to expect from a broker. We are also working with the Association of British Insurers and the British Insurance Brokers’ Association to establish a voluntary code of practice.

The third measure is to review the current system to see whether it could be improved. Many solicitors have questioned the feasibility of the current competitive market-based PII scheme and the single renewal date. In the current climate, such questions are not surprising. Nevertheless, we must not forget that until last year, the current system had worked well. It avoided many of the difficulties seen under the previous system and, most importantly, significantly reduced premiums. These are complicated issues that deserve careful consideration. We have, therefore, engaged a consultant actuary to advise on the merits of the single renewal date. We will publish the final report to encourage and inform discussion on this critical issue. Ultimately, however, it is for the Solicitors Regulation Authority (SRA) to decide whether to change the current arrangements. We will maintain our regular dialogue with the SRA to ensure that it is fully aware of our members’ interests.

The upcoming renewal period will still be difficult for some firms. Ultimately, of course, it is the market forces that determine the availability and price of insurance. We are fully aware that PII is a major issue affecting all firms, and we will continue to monitor the situation and develop further ways to assist our members to obtain PII.