Fresh concerns over unrated insurers after Balva suspension

Fresh concerns have emerged over professional indemnity insurance policies offered by unrated insurers following the suspension of Balva last month.

Solicitors have reported that the broker who previously sold Balva policies has offered them to transfer across to another unrated insurer, Berliner Versicherung Aktiengesellschaft, according to the Law Society.

Latvian insurer Balva was stopped in March by its regulator, the Financial and Capital Market Commission, from underwriting any new business in the UK.

The 1,300 UK law firms which had taken policies with Balva found out when they received a letter from the Solicitors Regulation Authority in April reassuring them about the decision.

Law Society chief executive Des Hudson said these firms "may feel pressured to obtain alternative cover as a matter of urgency and some may consider this to be a short-term solution, however, we urge firms to think carefully before simply transferring to another unrated insurer for the longer term without investigation".

Hudson said Balva's suspension should be "a wake-up call" for lawyers, before warning that although this did not affect Balva's current policies, "it seems increasingly unlikely that Balva will be in a position to continue to be a participating insurer next renewal."

He went on: "We have seen this pattern of insurer entry and exit before. When Balva entered the market, it offered a policy switch to customers of European Risk Insurance Company (ERIC). ERIC is no longer writing solicitors' PII business within the UK. Now Balva's customers are being transferred to Berliner. This cycle has destabilising effects."

Balva's suspension took place just a few weeks after a Law Society report showed that the number of firms turning to unrated insurers rose from 9 to 16 per cent last year.

The figure was highest among sole practitioners, with almost a quarter, 22 per cent, of sole practices relying on them, compared with 13 per cent of two-four partners firms only one per cent of 11-25 partner practices.

Talking to Solicitors Journal at the time Clive Sutton, honorary secretary of the Sole Practitioners Group, said indemnity insurance was a "one year deal" and there was "nothing to say" that Balva was not reliable or would not pay up.

"Insurance is very price sensitive for sole practitioners, with our margins, and some people don't want to pay an extra £10,000 just to get into a Rolls Royce situation.

"We're not being cavalier about it. As long as we are assured by the FCA and the SRA that the insurance is still good, people are entitled to go for lower quotes," he said.

However, writing in Solicitors Journal this week, indemnity specialist Frank Maher warned: "Nobody says [Balva] is insolvent, but equally there is scant evidence in the unaudited 2012 accounts on which a firm can satisfy itself that it will be there for the long term - an important consideration."