As Autumn rapidly approaches most law firms will either have confirmed the renewal of their PI insurance for the coming year or be in the very final throes of doing so.
This year’s renewals have been surrounded by talk about a hardening market where firms may have struggled to secure insurance for the same price as the previous year; with some firms potentially even struggling to secure cover at all.
When the news broke over the summer that Aon was removing its Maven MGA scheme from the market many smaller firms received a rude shock having been given no prior indication that this might be about to happen.
At the time, in August, Aon said: ‘Aon UK Ltd provides professional indemnity insurance broking and advisory services to solicitors firms of all sizes. A number of insurers are withdrawing from the solicitors PI market including Maven Underwriters. A number of Lloyd’s capacity providers who have previously supported the Maven MGA have withdrawn their capacity as part of the Lloyds profitability review.’
The Law Society Gazette in covering the story listed a number of other insurers who have exited the PII market in recent years including Aspen, Brit, Channel, Hamilton, Libra and Pioneer. During April renewals, two of the managing general agent-based schemes backed by Lloyd’s struggled to quote after losing their capacity, and have now also withdrawn from the solicitor market.
Impact on firms
From our own experience many firms reported an impact on the April 2019 renewal process; namely:
- Insurers asking for more information and evidence when underwriting individual risks
- The primary layer premium seeing an average increase of between 2%-20% even without a change of law firm risk profile
- The biggest impact being seen on the ‘excess layer’ premium, particularly over £3m of cover.
Early indications are that the October 2019 renewal process will continue the themes of increases in premiums, particularly where cover is over £3m.
In addition the proposal forms that firms are having to complete are longer and more detailed whereas in the past ‘short form’ proposals may have been acceptable to that insurer. The whole process is also taking longer and taking more focus from management as insurers are requiring additional information and asking supplementary questions and / or for further evidence to support the statements given on the proposal form.
Last week the SRA released guidance specifically around PII cover with the new guidance coming into effect from 25 November. The SRA note talks about firms needing to ‘evidence that they have made a reasonable and rational assessment of the appropriate level and wider terms of professional indemnity insurance cover required’ and sets out factors that firms should consider when arranging or assessing their existing cover.
Further details – including how this might apply to ‘freelance solicitors’ – can be found here https://www.sra.org.uk/solicitors/guidance/ethics-guidance/adequate-and-appropriate-indemnity-insurance/
Presumably this guidance will start to really make its implications felt during the 2020 renewal process; leaving firms to review how to approach buying their PII during the coming 12 months.
How will this affect the way in which firms need to select and apply for their insurance in the future?
Time will tell. The best advice as we stand today is probably to ensure that you have the right advice in place. In particular that you are working with the right PII broker. This is one that:
- Specialises in solicitors PII
- Has direct access to insurers
- Maintains a good relationship of trust with you. This is especially crucial where you need them to work with you urgently on the collation of key evidence for your proposal – and in particular in relation to claims records.
Having one individual at your firm that oversees the proposal is critical. Ideally this should be someone with project management skills; someone who is able to ringfence sufficient time to prioritise this essential task; and someone who has detailed knowledge of your firm.
Forward planning is going to be even more critical to future PII proposals than it is now. Where firms have left it late this month they may well find that it’s worked against the firm in securing the best rates and terms for the cover. With a turbulent year ahead predicted for firms as they attempt to navigate the complex and shifting regulatory landscape firms will need to allow sufficient time to manage the whole renewal process properly.
It is important that everyone involved is aware of the relevant timescales and that sufficient time is factored in to allow a thorough final review of the proposal for accuracy and consistency and also for the broker / insurer to raise any additional questions ahead of the deadline date.
With PII still representing a major cost for firms – usually only second in significance to salary costs – well managed firms will want to make sure they are in the best possible position when it comes to this time next year.
For advice on how you can shape your risk management framework and systems in order to ensure that your firm is in the best possible shape contact us here.