How do you solve a problem like PII?

Laura Clenshaw interviews Chancery Pii

Breaking into the professional indemnity insurance (PII) market
12 months ago, Chancery Pii aimed at stabilising one to four partner firms' insurance investments.
A year on, director Tim Norman talks about what needs to change in the industry and the organisation's plans for the future.

What are the main challenges for firms in the next six months?

The biggest thing at the moment is that you've got a whole profession trying to renew their insurance and the Solicitors Regulation Authority (SRA) rules aren't finalised yet.

There's some uncertainty around how much they need to buy, when that decision will be made, which potentially makes quite a difficult renewal period - we're only six weeks away now, and there's pressure on [firms] to be renewing but they don't know what to do. What we're trying to do is coast them through that really by offering various options, but it's a
difficult process, the renewal period is going to be quite difficult for them.

What does Chancery Pii offer that other providers can't?

We're giving firms a realistic alternative option to unrated [insurers], which is one of our key drivers. We're not trying to exclude any aspect of a solicitor's business. We will quote where we possibly can, albeit we will quote at the right level.

What we bring in terms of efficiency, is quite high; if firms submit a proposal form to us online, we will aim to turn round a quote within 24-hours, although in a worst-case scenario, it can be three days.
We give firms certainty very quickly. When a firm sends a proposal form to a broker, the timeframes that they're able to hit aren't anywhere near what we are able to achieve.

Why focus on the one to four partner size firm? Why have you decided to target specifically one to four partners?

Effectively, the Law Society did a consultation internally around this area. The one-to-four partner segment was identified [as] it was seen as the most unstable part of the solicitors' market. Historically, it was heavily insured with unrated security, which had inherent dangers.

Another aspect is the average lifespan of unrated insurers in that segment is two years; the average lifespan of a rated one is around four. What we tried to do was bring back some proper rated capacity and stability to that segment, we saw that as an area that needed help, whereas as you go up the chain to the larger partner firms, there is more appetite for rated capacity and the issues aren't quite as large.

Last year you came to market quite late - around August and the deadline is in October. What have you done to prepare for the 2014/15 year?

We did come in late last year because it's quite difficult to create new capacity for that segment; there aren't many insurers that wish to come into it so it took a lot of discussions. We built an IT system in a very short space of time, we got FCA-registered in a very short time but we still saw the benefit. We knew it was tight when we started.

This year, we've really listened to feedback from customers. Our IT platform, which for an online application was good, (it was exceptionally good for our first year of operation and in the timeframe we built it in) but it has been improved in a number of areas so the user experience this year is much better.

We've looked at all of our ratings and how we quoted business last year; we've relaxed some of the rules that we've had so we've been able to quote far more business than we did have last year.

We're more experienced and we're doing a better job. If it wasn't for the SRA-proposed changes we would probably have been quoting for 2014 renewals from 1 July, which gives clients an enormous amount of time to make those decisions.

In anticipation of the Legal Services Board (LSB ) ratifying the SRA proposals, in July our offering included quotes for lower limits for indemnity. It allows clients and prospective clients to see the real impact of the proposed changes in terms of premium differential.

Putting to one side the reduction in cover to £500,000, what should the SRA be doing with these reforms? What does Chancery Pii want to see?

We do not believe that there was enough consultation around the process and that it was as widely considered as it should be. Some things were included but there should have been other things on the radar.

We welcome a proper consultation on minimum terms, whether that's on limit or run-off, but for 2014 it was too rushed and it should have involved a wider number of stakeholders. It should have been deferred at the outset to 2015. By rushing it, things have been missed and
the right decisions might not
be made.

How do you stop firms with blemishes, unable to get insurance from rated insurers, from obtaining PII from unrated ones, which, in many cases, go bust? How do you stop this vicious circle from occurring?

There are a number of good firms with unrated capacity, and there are a number of good firms with poor experiences of the insurance market. You've got to deal with both aspects. There was a consultation on unrated security and that decision was either deferred or left open and no decision was made. The only way you can specifically stop unrated security is if you stop them from being able to offer terms of the PII market to the legal profession. But that doesn't necessarily solve the fact that there are some firms that can only get cover from unrated security. It is it a problem.

The issue is not availability but affordability. Coverage has, in the main, always been available from the rated market, however, undoubtedly with a differential in premium, many firms are being swayed by short-term premium savings inevitably offered by unrated carriers.

We have spent a lot of time working with our insurer partners, looking at what exactly the average risk and claims profile of the firm should be, with the aim of trying to ensure that firms with at least an average risk management profile obtain a quotation from Chancery at premium levels that reflect the claims experience of the one-to-four partner segment. The result is that for the first two weeks of quoting this year, we have quoted 85 per cent of completed submissions.

What areas of PII would you like to see changed, for example, having to cover for fraud?

There needs to be a thorough review of the minimum terms. The current consultation doesn't go wide enough. It needs to be considered across what the legal profession needs, what insurers would like to offer and what the SRA needs to have for consumer protection.

There are obvious ones that stand out. Fraud, you've mentioned. I think non-payment of premium is another aspect, the run-off cover is an interesting one - it's a major benefit for law firms but it does come at a cost.

How do you encourage a firm to keep up with their premium payments?

It's largely doable from an annual perspective - a lot of insurers require premium before they go on cover. We will only accept a policy if we have received the premium or if they have finance in place. That reduces our exposure to non-payment
of premium to an absolute minimum.

Has your first year been a success?

We are very happy with our first-year results. We have a five-year plan; we know exactly how we wish to grow. We want that to be a steady growth,
we don't want to come into
this market and come out with
£20m or £25m of premium - we think that has got some inherent danger to it, we would rather grow.

Year one, we did what we wanted to do, year two we know exactly what we should do and we're on track to doing that. We want steady growth and we want to be here in five years' time with a good client base - a loyal client base.

How much of the one to four partner firm market are you looking to cover?

There's a large proportion of premium out there. We would like to offer terms to the majority in this area. Restrictions on what we will offer are very low and we don't exclude any work type outside one or two areas, but they're not major areas in the sector. Do we want to be a monopoly? No, I don't think we do, I don't think that's an ideal scenario at all. We wish to be a decent-size player in this market space over the next five years.

We've learnt a lot from the first 12 months of trading, and the feedback we get from people on the online proposal form and the contact they've had with my colleagues. It's a very positive experience. They're delighted with our swift turnaround. They're delighted with the efficiency of the system. They're delighted with the fact they can get answers from us, that they can pick up the phone and get an answer from experienced staff. I'd encourage everyone to give us a try. I think lawyers will like working with us. SJ

Please note, this interview was conducted before the LSB's instruction to stall the consultation.

Tim Norman had this to say on the super regulator's decision:

 

"We believe that the Legal Services Board (LSB) made the correct decision in requesting additional information and time to consider the proposals put forward by the Solicitors Regulation Authority (SRA). It is important to remember that the LSB has not rejected the proposals, they have simply invited the SRA to provide additional information while considering whether the proposals are 'prejudicial to the regulatory objective of promoting and protecting the public interest'. This means the proposals can be considered until 17 August 2015 and potentially implemented in time for the October 2015 renewal. "Regardless of whether a £500,000 minimum limit of indemnity is appropriate, we believe that the action taken by the LSB is reasonable. First, the announcement has been made in time for the 2014 renewal to function, introducing more certainty. Second, it has highlighted the issue of timing, lack of data and consideration for the unforeseen consequences of the proposal, our main objections. "The ball is in the SRA's court to revisit the proposals and we invite them to engage with us in advance of August next year. Our hope is that they will not abandon the consultation and if they "remain convinced of the case for changing the arrangements for professional indemnity insurance", they will continue to look at the requirements. "We remain unconvinced by the proposal to reduce the minimum limit, however, we will accept any decision where a proper analysis has been undertaken. Our main concern is that the proposals as they are would make it difficult for one to four partner firms to remain on lender panels. This would create a two tier market, to the detriment of smaller practices. Instead we urge the SRA to consider issues such as automatic run-off and fraudulent non-disclosure provisions of the minimum terms. We believe this would make a material difference."