You are here

One thousand firms could close by Christmas

Balva firms will not find new insurers, expert predicts

30 September 2013

Add comment

Up to 1,000 firms unable to secure indemnity insurance in the wake of the Berliner wind-down could be forced to close before the end of the year, a compliance expert has predicted.

"By Christmas, there will be significantly fewer law firms, perhaps as many as 1,000," Legal Risk partner Frank Maher told Private Client Adviser's sister title Solicitors Journal.

"The majority of 'Balva' firms are not a clean risk, and there isn't really anybody prepared to take them on," he said. "Some brokers have placed some firms, but for a lot of them, it will be the end."

Maher's warning comes just days before Tuesday's deadline for professional indemnity renewal, which he says will trigger a market-wide awakening about the seriousness of professional risk in the sector.

He said his own law firm, Legal Risk, which specialises in risk and compliance, is receiving an increasing number of enquiries from solicitors asking about winding down their businesses.

Maher also suggested that Law Society-endorsed Chancery Pii, the Law Society's response to the demise of Balva and Berliner, would not address the fundamental problem affecting the sector.

A joint venture between Chancery Lane and Miller Insurance, Chancery Pii offers access to rated insurers via its online brokerage portal. The service, the Law Society says, is cheaper to use than traditional brokers.

"Chancery Pii was the answer to a problem we didn't have," Maher said, "It's offering cover for very clean risk."

But Chancery Lane has defended the initiative, with chief executive Des Hudson arguing it offered "a sustainable and viable alternative to unrated insurers".

The Law Society has declined to provide details about the number of firms that have been accepted through the Chancery Pii portal, only saying the take-up had been encouraging.

In a letter rejecting the claim by sole practitioner Clive Sutton in last week's issue of Solicitors Journal that Chancery Lane had not done enough to support practitioners, Hudson said Sutton was "quite wrong to suggest that the Law Society's protection for practitioners has been insufficient".

"The Law Society implemented an educational campaign in January to warn its members about the risks associated with unrated insurers and has expressed concern through multiple channels of communication for some time about the instability caused by insurer failure within the market which particularly affects small firms," Hudson said in a letter to Solicitors Journal.

"We have run a 'Stay Afloat' campaign to raise awareness of the importance of the financial security of insurers offering cover and have produced extensive guidance to assist members make informed decisions.

"The Law Society has also been proactive in encouraging rated capacity into the 1-4 partner segment of the market with the launch of Chancery Pii. This new direct route to professional indemnity insurance will provide PII cover for firms with between one and four partners.

"Chancery Pii offers quotations to firms that meet the underwriting criteria set by its panel of insurers. The underwriting criteria seeks to enable the participating insurers to achieve sustainable premium levels. This is necessary to offer the profession a quality product now and in the future, and to offer solicitors a sustainable and viable alternative to unrated insurers."

Dear Sir,

Clive Sutton is right to highlight the fact that insurance indemnity premiums are not something "to be entered into lightly or wantonly", (‘Left at the alter by Mr Unrated’, Solicitors Journal 157/36, 13 September 2013). However, he is quite wrong to suggest that the Law Society’s protection for practitioners has been insufficient.

The Law Society implemented an educational campaign in January to warn its members about the risks associated with unrated insurers and has expressed concern through multiple channels of communication for some time about the instability caused by insurer failure within the market which particularly affects small firms.

We have run a ‘Stay Afloat’ campaign to raise awareness of the importance of the financial security of insurers offering cover and have produced extensive guidance to assist members make informed decisions.

The Law Society has also been proactive in encouraging rated capacity into the one to four partner segment of the market with the launch of Chancery Pii. This new direct route to professional indemnity insurance will provide PII cover for firms with between one and four partners.

Chancery Pii offers quotations to firms that meet the underwriting criteria set by its panel of insurers. The underwriting criteria seeks to enable the participating insurers to achieve sustainable premium levels. This is necessary to offer the profession a quality product now and in the future, and to offer solicitors a sustainable and viable alternative to unrated insurers.

Your sincerely,

Des Hudson

Law Society Chief Executive

Categorised in:

Legal services