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EXCLUSIVE: UK law firms to take a hit on PII premiums at next renewal

Lack of internal engagement with risk management is a key challenge, Managing Partner survey finds

10 June 2015

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By Manju Manglani, Editor (@ManjuManglani)

A large number of UK law firms are being complacent about risk management and this will be reflected in their professional indemnity insurance (PII) premiums at the next renewal, a snapshot Managing Partner survey has found.

More than two fifths (43 per cent) of respondents said their firm has not done anything to improve its risk rating since the last renewal season. Consequently, nearly half (49 per cent) said they expect their premiums to rise at the next renewal, while two-fifths said they expect there to be no change.

A similar amount (39 per cent) said their premiums had increased at the previous renewal, while 41 per cent said there had been no change. One fifth said their premiums had decreased. Only a tenth of respondents said they expect their firm's PII premiums to decrease at the next renewal.

Lack of internal engagement with risk management seems to be an ongoing issue which may be affecting law firms' PII premiums.

"We need greater buy-in from senior lawyers, who need to lead by example more of the time," said an operational risk director at a national firm. "There is a lot of work to do to educate lawyers on wastage caused by poor client communication/file management (e.g. write-offs, poor billing practices, taking on the right clients and poor procurement practices)."

Agreed a COLP at a national firm: "Lawyers need greater awareness of risks and the impact on the business of poor risk management."

Nearly three quarters (73 per cent) said they think their firm has a strong risk culture and 64 per cent said their firm has a clearly-articulated risk appetite statement. But, identical to last year's survey findings, 71 per cent of respondents also said that partners need to take more responsibility for risk management.

"Law firms need to recognise the value of risk management in improving business processes, driving efficiency and, ultimately, profitability," said the general counsel of a national firm.

Agreed the operational risk director at a national firm: "Law firms need a better understanding of the benefits of good risk management, improved clarity of purpose and an embedding of the processes that make risk management effective at board level. Risk management also needs to be embraced by both lawyer teams and support departments as part of the way in which they manage their areas of responsibility."

Said the managing partner of a regional firm: "Risk needs to be at the forefront of all strategic planning, all the time, and permeate everything the firm does. Lawyers are naturally risk averse - it will be interesting to see if appetite for risk changes as more external investors come into the legal market. A change in attitude might be necessary to keep up with competition from non-traditional providers."

Managing Partner's snapshot annual survey on risk management and PII was conducted between 27 April and 1 June 2015 and received 81 responses, 99 per cent of which are from respondents based in the UK. Sixty-nine per cent said they are actively involved in developing their firm's risk strategy and 52 per cent said they are a member of their firm's senior management committee.

Our research found that many firms are failing to align the risks which lawyers are incentivised to manage with the actual risks facing the business, such as data security. The full results will be published in the July/August double issue of Managing Partner and online. Subscribe now to access the research findings and analysis.

 

 

 

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