PII renewal season approaches
A thorough record of risk incidents and good communications with a broker are key to achieving the best coverage, says James Holman
After people and property, professional indemnity insurance is likely to be the largest annual financial commitment a firm will make. It’s also a legal requirement to practise, and yet many firms fail adequately to plan ahead for their PII renewal, limiting their ability to achieve the best coverage and financial outcome.
In particular, this can be an issue for small to medium-sized firms, which may lack the resources to dedicate a lot of time to a PII renewal. In those circumstances it can become a last-minute consideration when renewal season rolls around.
The good news is that, in general, the PII market has remained fairly soft over the past five years. Premiums – particularly for those firms which can demonstrate that they are well run and have a firm grasp of risk – have remained level. But to access the best deal, firms need to display real rigour in the management information that they provide to prospective insurers, particularly around known exposures and any known incidents which could expose them to liabilities.
Monitoring and recording information which will impact a PII policy should be an around-the-clock consideration for any practising law firm, no matter its size.
Whether a firm is making an initial application or renewing its annual cover, insurers will want to see evidence of two main considerations:
• The firm understands its risks and takes steps to mitigate them; and
• In the event of an incident, steps are taken to address the problem and to learn lessons.
That means firms should always ask themselves a few key questions:
• Where is the firm’s risk?
• What is our incident management plan?
• How do we investigate and record incidents?
• Do we have a supervisory regime in place to monitor risks and incidents?
• How do we learn from errors?
These considerations apply to any practising law firm. Establish procedures to mitigate risk, make people responsible for priority areas, and establish, publish, and raise awareness of guidelines for the firm to work to.
Insurers will also expect to see a record of all risk incidents the firm has faced, so it is important to log all incidents that could result in a claim for liability, whether these are complaints from clients or policy breaches.
It is important to remember that no incident is too small to record – from the loss of a BlackBerry or documents to an email being mistakenly sent to the wrong recipient, incorrect enclosures with a letter, or poor use of social media, all carry a risk and an associated cost. As a result, firms should be recording all breaches as a matter of course.
Any breach, regardless of scale, should be immediately logged after it occurs. This data should recognise possible causes behind incidents, how these could have been prevented, what was done to rectify the issue, and what has been put in place to limit the chances of it happening again.
It may seem counter-intuitive, but providing a full list of incidents and how they were addressed could lead to a lower premium than providing no data and expecting an insurer to believe that no relevant incidents occurred.
Firms should appoint a central person to receive reports of incidents, instead of reacting to incidents on a case-by-case basis. Rather than logging incidents before PII renewal, roll this into an annual risk process and continue to monitor throughout the year.
Ahead of renewal season, a broker can save you both time and money, but you need to choose the right one.
Start by conducting some broker due diligence. Most brokers operate on a commission basis, so initial meetings and fact finds may be cost free. A suitable broker needs to have a firm grasp on both the insurance market and the practice areas your firm operates in. Some brokers have limiting commercial agreements with certain insurers, so make sure they have access to the right insurers for your practice. Speak to colleagues in the legal sector about their experience.
Once a broker has been selected, it’s important to maintain good communications throughout the relationship. A broker who understands your business will not only be able to negotiate more tailored cover, but they’ll also argue the case for why your firm is a good risk to take on. It’s a symbiotic partnership.
Finally, it may be beneficial to stick with one broker during the renewal process. The PII market is small, so consulting multiple brokers may result in them all putting forward your business to the same insurers. This not only slows down the renewal process but may also damage insurers’ perceptions of your firm as a stable, well-managed practice.
James Holman is a partner and head of compliance at Weightmans