It is just over a month since the conclusion of the October 2017 Professional Indemnity Insurance (PII) renewal for Solicitors in England & Wales.
In general terms, we are still trading in a very competitive PII market.
During the last couple of years we have also seen new entrants to the PII market for Solicitors. 2017 was no different.
This fact supported by a favourable claims experience has driven highly competitive conditions for the majority of firms.
This choice of insurers for firms of all sizes and profile is now greater than ever before. We would suggest that firms of between one and 10 partners have 20 available to them and those with 11 or more partners have a similar number of insurers willing to offer an Solicitor Regulation Authority (SRA) compliant policy to them.
Sole Practitioners and "high street" firms now have the greatest number of insurers offering PII policies since the year 2000. This should rightly be regarded as tremendous news for the profession. Having choice must always be seen as good thing!
Does this choice help reduce PII premiums?
Absolutely yes! The competition for good business will always drive rates down.
The majority of the participating insurers have collated significant data during the years following the demise of the SIF and many are confident in their risk selection process. The rates are lower than for some time. Some firms secured very high reductions in premiums in 2017.
Having said that, most insurers are still treading carefully around both residential and commercial conveyancing exposures. A number of insurers have for some considerable time made best endeavours to effectively cap their exposure to property transaction risk.
When assessing a firm’s risk profile, an insurer's first rating factor is generally the type of work a firm undertakes. This is considered alongside a firm’s historical claims experience and other risk assessment factors in particular a firms track record in managing the risks in their business and their general approach to ongoing risk and compliance issues.
Negligence claims arising from property related transactions without exception account for the largest number of claims against solicitors. In fact research undertaken by us suggests that over 60% of the notifications made during the last three years relate to conveyancing matters. It is therefore completely understandable why insurers generally approach this area of practice with a degree of trepidation. Although we are operating in an extremely soft market at present, firms should not be complacent and must be as vigilant as ever to the risks they face on a daily basis.
This statement of course applies to all areas of their practice and is not limited to just property work.
The evidence is clear; mistakes happen and as the saying goes "to err is human" negligence claims will therefore always be a feature in the world of a solicitors practice.
The true cost of a negligence claim extends way beyond being faced with increased insurance premiums. The cost to the firm, its management and to the individuals involved can be extremely damaging. Some would say it is a no-brainer to maintain a robust approach to risk management when you consider the following consequences of a negligence claim:
- Increased insurance premiums
- Loss of potential clients
- Damage to your firm’s reputation
This all sounds rather dramatic but those who have experienced claims will I have no doubt be able to resonate with most if not all of the above.
In reality, professional negligence claims will always exist. Believe it or not and although they may not like it, insurers do accept this fact. The most important underwriting consideration, therefore is understanding what firms are actually doing to avoid claims in the first place.
A firm that has experienced claims and is carrying on regardless will not be deemed insurable at an agreeable level of cost. It is fair to say that firms falling into this category appear to now be in the minority but they do exist.
So what can firms do to demonstrate that they take risk management seriously?
During the last few years, a number of firms have been offered the opportunity to meet with their primary insurer. If that suggestion is made, my recommendation is to do so. I would also seriously consider meeting other insurers as part of the renewal strategy. Take the opportunity to make your case. Experience proves that building a strong personal relationship with an insurer will place you in a better position at the point of renewal negotiation.
The outcome is likely to be more positive if the insurer is fully acquainted with your firm and is personally engaged with how the firm manages risk. This can only be achieved if you meet face to face.
If your current broker has not raised this as part of your strategy, then take the initiative and suggest you should do this.
The majority of firms now prepare a separate document which outlines their approach to risk management. This document should accompany the proposal form you will be asked to complete.
If your firm has experienced claims during the last few years, please provide a note explaining the circumstances surrounding the claim and focus on the remedial action taken by you.
If you have implemented new systems, processes or in general different and improved methods of working, please provide an overview and the benefits you have experienced since implementation.
What should firms expect in 2018?
At the time of writing, we would expect at least for the foreseeable future the current soft trading conditions to continue. Having said that, there are a small number of insurers talking about their desire to increase rates.
Hearing “the current conditions are simply unsustainable” or “we have no option but to increase rates” are becoming more and more common statements from insurers.
Based on earlier comments, you may believe this to be an odd thing to say. The fact remains that new claims are still being made and a noticeable number of older and complex claims are now being settled at very high levels. In some cases for multi-millions.
This will inevitably have a negative impact on the insurers paying these claims. Their rates will undoubtedly be reviewed and in most cases these are the insurers looking to secure increases. An obvious statement to make perhaps.
Is your firm currently with an insurer looking to increase premiums? I would recommend that you engage with your broker in that regard.
Preparation is the key!
Our advice in this regard is consistent
You should agree a renewal timetable with your broker:
- Leave yourself plenty of time- don’t leave decisions to the last minute
- Submit a draft renewal submission to your broker- ask for their advice- ask “should I provide more information?” “If so, what more do you need?”
- Make sure you fully understand the potential options available to your firm,- your broker will of course advise you in this regard.
You may believe these suggestions to be obvious but there are still many firms that in our experience do not appear to approach the PII renewal with a plan.
Despite the blatant risk, far too many firms seem to make decisions at the very last minute; at times with just hours to go before the expiry of their current policy.
We also receive far too many renewal submissions during the final few days prior to policies expiring; sometimes on the actual day of expiry. Just madness and not a strategy that will ensure a favourable outcome.
A final few thoughts around the choice of broker to represent your firm:
- Select a broker that has genuine expertise in the field of Solicitors PII. There are only a small number of specialist brokers despite the fact that so many will suggest otherwise
- Many brokers do not have direct access to insurers- it is not unusual for two or many more brokers to be involved with the same transaction. How can this possibly be in your firm’s best interests?
- Ask the broker which insurer’s they have direct access to find out if they have any exclusive arrangements. A small number of us do!
- A number of insurers have a very limited panel of brokers they will deal with. Please do not be hoodwinked by brokers who are not honest about this. Always ask for a list of insurers they will be approaching on your behalf and ask for confirmation if they deal on a direct basis or via other means.
- We estimate that in reality over 50% of the whole profession is represented by no more than three or four brokers. This has been the case for many years.
Do not be fooled by some of the claims made by some brokers, many are not specialists but they are simply being speculative in an area which is highly specialist. You would not see your GP for heart surgery would you?!
You would clearly consult a specialist surgeon who has a proven track record of successful operations. Treat the selection of your PII broker in the same way.
Our Legal Practices Group is one of the largest and most experienced Solicitors PII teams in the UK.
- We are genuine specialists; our clients range for sole practitioners and firms in the high street to larger city and national practices with a global footprint
- Our team is located throughout our UK offices offering our clients a highly personal and proactive service
- We have secured a number of exclusive deals with insurers which complements our wide “direct” access to the SRA’s participating insurers.
For more information contact Martin Ellis, Head of UK Professions and Legal Practices Group on +44 20 7528 4704 or email firstname.lastname@example.org