Professional Indemnity Insurance for Solicitors in England and Wales
The 2008 Renewal Solicitors have now experienced nine years of renewing their professional indemnity insurance in the commercial market and in some respects this was the most challenging year. . A large proportion of firms experienced increases in premium at a time when their fee income was reducing. The only exception to this trend appeared to be the larger firms who generally managed to avoid the increases; however we are not convinced that all these firms will be immune from increases in the future.
All firms are facing a difficult time due to the economic downturn and the general slowdown in the number of transactions requiring legal input. This is made worse by the increased activity from their clients looking to bring claims against them for their own financial losses. Although most of these are focused on the property sector, our experience shows that claims are being brought across all sectors.
The number of mortgage fraud cases has increased significantly in recent months, with further incidents being reported almost on a daily basis. As a result, the majority of insurers involved in the provision of solicitors’ professional indemnity insurance responded quickly by increasing their premium rates for property related activities. Simply put, firms with a bias towards property transactions would have seen their premium increase in comparison to previous years.
The number of insurers prepared to consider offering terms to smaller high street firms reduced and many of these firms were left with either little or no choice which, as we understand, has led to a record number of provisional applications made to the Assigned Risks Pool (ARP). The final number of firms entering the ARP is understood to be in the region of 140.
We know that a number of these firms simply left things too late and their options ran out while others were badly let down by their broker or insurer at the last minute.
The firms which fall into this category must address this over the forthcoming months and do everything they can to start their renewal earlier next year. They must ensure that all options are covered and the removal of their firm from the ARP must be a priority.
The table below illustrates how punitive the actual cost of the insurance with the ARP actually is.
ARP Premiums – Examples for reference
Gross Fee Income ARP Premium
Firm A £235,000 £64,625
Firm B £760,000 £194,700
Firm C £2,500,000 £522,500
We are in no doubt that firms would find this kind of expenditure simply not viable particularly in the current economic climate.
We have previously focused on the now well known problem of the “sub-prime” crisis. We predicted that insurers would ask more questions regarding conveyancing and property related exposures. A large number of firms were required to complete specific work type questionnaires and were asked in general to provide more information regarding their profile and risk than previously. The reason for this was simple: Insurers were and continue to be extremely concerned about the increase in claims activity arising from the downturn in the housing market and the number of mortgage fraud notifications.
Many will remember the plethora of claims against solicitors made by the lending institutions in the early 1990’s. The fear that history will repeat itself is very real and insurers are bracing themselves accordingly. If we do experience what some would say is inevitable, the renewal in 2009 will be extremely difficult for certain firms. We could continue to see more insurers reduce their involvement with solicitors’ professional indemnity insurance or pull out altogether.
Some insurers may say that “it’s just not worth the risk”. This will mean that some firms will again see hikes in their premium and this will be of obvious concern to the profession. This all sounds rather gloomy but the profession requires a reality check. Even with the rate increases this year the majority of insurers still believe that current rates are unsustainable and need further adjustment.
Of course these words do not apply to every firm. Not all firms are considered to be high risk. It is fair to say that a growing number of firms have established a robust risk management culture within their businesses.
This has assisted to reduce the number of claims and the incidents of complaint. These firms will continue to be assessed favourably by insurers.
Complacency must not set in and firms must continue to be vigilant and committed to on going risk management and compliance.
Prime Professions Limited is a specialist Insurance Broker. Our solicitors’ practice group currently represent over 2,400 firms of Solicitors in England and Wales. Our clients range from Sole Practitioners to “Top 100” firms with national and international presence. Our team is widely respected and is regarded as one of the most experienced of its kind in the insurance market.
Key Contacts:
Martin Ellis Director and Head of Solicitors’ Practice Group
DD: 020 7173 2135 E: mellis@primeprofessions.co.uk
Robin Bayly Director
DD: 020 7173 2140 E: rbayly@primeprofessions.co.uk