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Jean-Yves Gilg

Editor, Solicitors Journal

Firms not shopping around for professional indemnity insurance

Firms not shopping around for professional indemnity insurance


Emergence of brokers' schemes a main driver behind law firm loyalty to insurers

Nearly three-quarters of law firms (72 per cent) renewed their professional indemnity cover with the same insurer last year, with more than three-fifths (85 per cent) going through the same broker, research has revealed.

Firms’ loyalty to their brokers has markedly increased in the past three years. Only 47 per cent used just one broker in 2013-14. That figure rose to 57 per cent in 2014-15, then to 63 per cent in 2015-16, and last year reached 71 per cent, according to the latest Law Society’s annual PII survey.

The research, which canvassed a sample of 601 small to medium-sized firms in England and Wales, also showed that more than half of firms also submitted just one proposal form when renewing and that most firms (92 per cent) were satisfied with their brokers.

Frank Maher, partner at Legal Risk, a law firm specialising on advising other law firms on risk management, said loyalty had become a key feature of the market. ‘Professional indemnity insurance isn’t an ordinary commodity like car insurance. If you’ve been loyal to your broker, they’ll usually look after you when things get a little uncertain.’

The high figure, Maher continued, also reflected the market structure for the selected sample. ‘This has an impact because a lot of those small and medium-sized firms will be on a broker’s scheme. These have changed the shape of the market. Unless something has happened, there’s no reason why you would change broker, and since most have a scheme with an insurer, you will be with the same insurer too.’

However, despite general satisfaction with the service received from brokers, the sample was split over information provided about commission. About half said details had been voluntarily disclosed, while a similar number said no information had been given at all. When disclosed, commission was between 5 and 15 per cent.

On the ground, cost, followed by the financial solidity of the company, were the main reasons for choosing an insurer at 44 and 37 per cent respectively. The scope of cover and excess on claims scored the least at a lowly 6 per cent each.

Meanwhile, looking further ahead, proposals by the SRA to lower compulsory cover to £750,000 with firms buying top-up cover, have left solicitors cold. Only about two-thirds (44 per cent) of respondents said the current rules needed reform, and 69 per cent said the current minimum level of cover of £2m was ‘about right’.

Lawyers have suggested in conversation that they were unconvinced by the proposals. These could reduce protection for clients and addressed issues that the sector has already resolved.

Top-up steady

Findings that only a few more firms have purchased top-up cover and that the amount have hardly increased on last year’s could confirm that firms and insurers have commercially adjusted to the risk and brought it under control. The mean amount went up 3 per cent from £6.22m to £6.435m, with the mean cost of top up rising by just 1 per cent to £7,750. Only sole practitioners and 2-4 partner firms bought more top-up cover last year.

The mean premium cost has gone down 1.3 per cent but not all firms have benefited equally. While larger firms (5-10 and 11-25 partners) have seen a significant drop in mean premiums, smaller firms have experienced an increase. And sole practitioners are still paying the most as a percentage of turnover.

Run-off cover continues to be an issue, with firms paying on average three times their annual premium to buy the additional six years’ cover. The SRA has mooted the possibility of doing away with compulsory run-off cover on the basis that this would further help reduce the cost of premiums. But Maher said the likely savings would be minimal and could also affect the rights of solicitors who have retired on the understanding that they would remain covered for six years.

Beyond the run-off period, only just over a third of firms were aware that the Solicitors Indemnity Fund (SIF) will close in 2020. Less than half of firms, however, agreed it should be mandatory to buy run-off cover beyond the compulsory six years. Nevertheless, 70 per cent of firms would consider buying an extra six years of run-off cover if it were available on the open market, with most saying they would be prepared to pay twice the cost of their annual premium. There was noticeable disparity depending on firm size, however. Only 52 per cent of 11-15 partner firms would consider it, compared with 72 per cent of 2-4 and 5-10 partner firms.

SIF is only relevant to firms that cease trading, but the high incidence of claims suggests that its closure could be an issue, Maher said.


Other findings

  • October remains the renewal date for 68 per cent of firms.

  • More than three-quarters of firms (70 per cent) opt for 12-month policies.

  • Notifying your insurer of circumstances that might give rise to a claim; increasing the number of fee earners; and increasing the amount of conveyancing work were the top three risks potentially affecting premiums.

  • Claims were made against 13 per cent of firms.

  • More than 25 per cent of firms say they’ve been targeted by scammers, with spam and phishing the most common scams. Cyber insurance has been taken up by one-quarter of firms.


    Jean-Yves Gilg, editor-in-chief