The Current Market for Solicitors’ Professional Indemnity Insurance
An Overview
The good news: In general terms the market for Solicitors’ PII is the best it has been for many years. For many firms this will mean that more insurers will be prepared to provide a quotation and that the rates they apply are likely to be lower than at the last renewal. This healthy competition for business, sadly lacking until recently, has contributed towards a lowering of insurer rates and to a ‘softer’ market overall.
Individual circumstances are still a factor and firms that conduct higher risk work, have experienced large or frequent claims, have had disciplinary issues or have a combination of these factors may still find a limited appetite for their business and may benefit less from an otherwise improved marketplace. Even so, firms with rating factors such as these are still likely to find underwriters more receptive than in previous years and the impact of such considerations should be lessened as a result.
The current market conditions are even more favourable given that unrated insurers have now all but departed. In most instances firms are now able to choose from competitive options provided by rated markets rather than being faced with the unenviable decision of choosing between “cheap unrated insurer A” or “expensive rated insurer B”. The departing unrated insurers have been replaced by rated ones which have brought additional capacity which itself has contributed to the softer market.
Rates are typically 1% to 5% of a firm’s fee income although individual circumstances like the ones described above can see firms paying 10% or more. Overall though the trend is downwards with rate reductions normally more than offsetting moderate growth in fee income.
There are various factors that have contributed to the current market conditions, including:
The abolition of the Assigned Risks Pool (“ARP”).
The abolition of the Common Renewal Date: It’s worth noting that 40% of our Solicitor clients renew on a date other than 1st October. A similar percentage have cover with a policy term of 18 months or more.
A reduction in the volume and size of claims.
An influx of additional rated participating insurers. To a degree this is as a result of the factors listed above.
Factors That May Affect Market Conditions In the Near Future
Fraud Claims
Whilst the overall number of claims experienced by Solicitors appears to be reducing, claims related to fraud remain a concern for insurers. Claims of this type can be large, often disproportionate to the size of the law firms targeted. Fraudsters have become increasingly inventive and their techniques have moved on from the ‘Friday afternoon scams’ experienced a few years ago. This makes it even more difficult for Insurers to factor in the potential for fraud when calculating their rates for Solicitors.
Law firms that can demonstrate a pro-active approach to risk management and use robust internal processes in conjunction with products provided by specialist third parties are likely to give insurers greater comfort.
This is an area that changes almost daily. Firms should stay abreast of fraud-related trends and be receptive to process and system-related changes in order to stay one step ahead of scammers.
Brexit
Although Article 50 has now been triggered, the nature of the UK’s departure from the European Union and any subsequent effects on the UK economy are very much the stuff of speculation. The most recent recession triggered various factors which led to a significant increase in the number of claims experienced by Solicitors and other professionals. Whilst it is difficult to predict the impact the realisation of Brexit will have on claims and the insurers themselves it does have the potential to become a factor in the PII market over the coming years.
SRA Consultation Regarding Professional Indemnity Insurance Minimum Terms
In 2014 the SRA proposed various amendments to the PII minimum terms and conditions (“MTCs”). These included a reduction in the minimum cover required by a firm from £2m/£3m (depending on the type of business) to £500,000. The Law Society opposed these changes, as did the insurance industry, and ultimately the plans were refused by the regulatory oversight body, the Legal Services Board.
It is understood that the SRA is considering making another attempt at amending the MTCs. It has cited research published towards the end of 2016 which it says demonstrates that current insurance requirements are disproportionate to the actual risk that most law firms find themselves exposed to. The data covers the period 2004 – 14 and shows that one in five claims resulted in an indemnity payment, and that 98% were settled for less than £580,000.
Like many in the insurance industry, The Professional Indemnity Company questions the suggested benefits of a reduction in minimum cover. It is acknowledged that in part the SRA’s intention is to reduce the financial burden that PII represents to law firms, especially smaller practices. However, a reduction in the minimum cover requirements could be counter-productive and would not necessarily result in a significant reduction in premiums. The SRA’s data broadly correlates with insurers’ experiences, i.e. that most claims settle at below £580,000. This begs the question: given that in most instances insurers are faced with individual claims of circa £500,000 or less, how does a firm taking the lower limit of indemnity of £500,000 represent a significantly reduced exposure to insurers? From our own discussions with key insurers the general consensus appears to be that a reduction in cover would potentially result in a premium discount of between 0% and 10%. It is worth bearing in mind that any premium saving would be in exchange for a reduction in cover of 75% or more.
The Professional Indemnity Company is a specialist, independent professional indemnity insurance broker.
Our Solicitor Division was set-up by Solicitors, for Solicitors and our Account Managers have over 40 years’ experience in securing quality, competitive cover for law firms.
If you would like to discuss your own professional indemnity insurance requirements or if you want us to provide you with quotations, please contact us on: 0333 733 5192 or by email: info@thepicompany.co.uk
This document is intended for information purposes only.
Whilst all care has been taken to ensure its accuracy it should not to be regarded as a substitute for specific advice. This document should not be reproduced in any form without our prior permission.
© 2017 Professionals for Professionals Limited t/a The Professional Indemnity Company