Offering a sustainable insurance solution

How successful has Chancery Pii been in providing professional indemnity insurance (PII) for solicitors' firms? What has the uptake been like?

Chancery Pii commenced trading at the end of August 2013, the same time unrated Latvian insurer Balva was exiting the PII market. We were delighted with our performance in the first year and the discipline of our underwriting. From the beginning we set out to be an insurer that offers a sustainable insurance solution, in a sector (one-to-four partner firms) which has seen a great deal of uncertainty, either from unrated carriers or established insurers entering and then exiting the sector, creating a great deal of pricing instability. 

In our first two years of trading, we have successfully grown our business and now offer quotes to in excess of 80 per cent of firms that submit an application to us. Our plan is to continue offering cover for years to come. Our sustainable underwriting philosophy, coupled with the level of service and attention we provide to our clients, bodes well for the future.

What is the October renewal date looking like?

We expect the upcoming renewal season to be similar to last year, where very few firms struggled to secure terms and premiums were stable or in some cases reduced.

We anticipate an increased take-up of long-term policies (thereby moving firms away from the traditional October renewal date) but, as a word of caution, we would suggest that firms consider these long-term policies very carefully, to ensure they are in their best interests. In a similar way to early renewal offers, policy extensions and longer-term policies are often to the benefit of the broker or insurer and not the firm. Chancery Pii provides a benchmarking service where firms have been offered one of these options.

I understand Chancery Pii is designed to provide cover for smaller (one-to-four partner) firms. Has there been a specific size of firm that has been most interested? Would you consider widening the type of firm you provide cover for?

Chancery Pii was set up as joint venture with the Law Society of England and Wales to deal with the inherent problems experienced by one-to-four partner firms in the purchasing of their PII. We believe the larger firms (in excess of four partners) currently have less difficulty in securing PII. We monitor the market carefully and will consider expanding our offering should we see an opportunity to assist the legal profession.

Should the Solicitors Regulation Authority (SRA) change the minimum terms and conditions imposed on insurers? Would this allow insurers to cover more firms?

Law firms in England and Wales benefit from arguably the widest PI I cover available in the insurance market. While we welcomed the SRA's decision to hold a consultation last year, we were dismayed that the regulator failed to consult broadly enough with all parties prior to its commencement. The timing of the consultation was also ill considered, and it was fortunate the renewal season was benign because, in different circumstances, this could have badly damaged the process.

We believe that a number of aspects of the minimum terms should be reviewed. The principle issues are the inability to cancel for non-payment of premium, fraudulent non-disclosure, and, to a more limited extent, the six-year run-off requirements. These issues, coupled with the 'exclusives' offered by various brokers, have resulted in instability and often systematic under-pricing in the sector, and have greatly reduced the appetite of insurers to enter the sector.

What about the SRA's decision not to introduce financial security ratings for insurance companies?

The SRA consultation on the introduction of a minimum financial strength rating requirement for participating insurers in 2014 resulted in the majority of respondents actually agreeing with the SRA's recommendation to impose a financial security rating. Therefore, it is somewhat surprising that such a restriction was never imposed.

Our view remains the same as in 2014: there should be a restriction on unrated security. We find it difficult to comprehend how allowing unrated security sits comfortably with the public interest or indeed the profession. While we disagree with the outcome, what the consultation did was raise the awareness of the issue and in 2014 we saw unrated security begin to fall away. Our view is that this trend is set to continue, with a number of firms now considering it invalid from a commercial perspective.

What are the biggest challenges in obtaining PI cover that firms face at present?

From a pricing perspective, our expectation is that the 2015 market will be stable and that most firms will be able to arrange cover. As insurer claims data improves, we think there will be increased focus on firms with litigation exposure, which reflects an up-turn in claims and insurer rating approaches changing accordingly. As with previous years, insurers will inevitably continue to focus on those firms with personal injury and conveyancing exposure, simply due to the claims experience in these areas.

What does the future hold for the PII market?

History has taught us that the solicitors’ PII  market is cyclical, with the majority of insurers either offering capacity or correcting their pricing methodology every four years. We are currently two years into one of these mini-cycles and our expectation is that the insurers who experienced rapid growth over the past two years will begin to look at, and correct, their portfolios. This will inevitably impact the profession. From a regulatory perspective, we believe that the SRA will continue to look at the minimum requirements for PII, and our expectation is that at some point in the next couple of years changes will be made. SJ

Tim Norman is director of Chancery Pii