The rising influence of information technology in PII

Ever changing times and the increasing reluctance of rated insurers to remain in the professional indemnity (PI) market, create the perfect storm for traditional high street solicitors. The last few years have seen ever-increasing PI premiums, so what is available to counter this effect and where can solicitors turn to decrease such a burden?

If you can’t rely on competitive pressure from unrated insurers to prevent spiralling PI insurance premiums, maybe the best way is to reduce the risk the work you undertake introduces – and to demonstrate you have done so. Your greatest ally in doing so is probably on your desk right now, unrecognised and under-utilised – your practice and case management system (PCMS).

Attractive proposition

Equipping your law firm with an up-to-date
PCMS not only has the benefit of helping you
to meet the challenges faced within legal services, but can also help you position your firm so it is
seen by prospective PI insurers as a far more attractive proposition.

Despite the problems in the PI marketplace during the renewals last year, many firms are actually seeing a significant reduction in their PI premiums due to the rigorous implementation of practice management standards through the effective use of PCMS IT.

PI renewal is no longer the tick-box approach it was historically. For some years, insurers have wanted the information which allows them to assess their risk – claims and complaints records, pattern of work undertaken, type of clients the work is for – and the way the firm reduces risk through automation, enforcement and monitoring. For all of these, the PCMS system or systems provide essential tools.

Demonstration of adherence to standards-based schemes by regular audit or ongoing monitoring are becoming important ‘elements of proof’ of a well-run business.

Where external standards are not available, tangible evidence of formal process, review, audit and outcome measurement will help. Firm managers should know precisely how work of various types is handled and will need the tools to determine where deviation from the approved methodology is happening and whether the change is beneficial, immaterial or dangerous.

Waiting to monitor the outcome is not going to provide the evidence of control that ought to be demonstrated to PI insurers. Firms should provide details around this to the insurer in a separate document, whether or not
the proposal form requests this information specifically.

The introduction of Lexcel and CQS standards provide a useful avenue to help you to demonstrate an effective practice management regime. Good use of a firm’s PCMS system will enable such external, or internal, standards to be met and monitored relatively painlessly.

Financial benefits

Use of a case management approach, whether for an entire transaction or for individual steps chosen by a senior fee-earner, ensures that appropriate data is collected and stored, that standard documents are used and are recorded and versioned against the file.

The twin benefits of such an approach are operational efficiency and a positive record of good practice. Only through the rigid enforcement of such standard operations, through embedding those standards through the PCMS, will you fully benefit from the potential savings available when renewing PI cover.

There is, of course, the second set of financial benefits that come from increased efficiency and improved client service. This virtuous circle of cost reduction and service improvement provide business benefits across the range of legal services undertaken by your firm.

In even the best-managed firms there will inevitably be times when things go awry. Being aware of these at the earliest possible opportunity and recording the problem and the corrective action (reporting material breaches) are good ways to mitigate any risk. Being able to review problems to identify systematic or repetitive failures is a good way that a sophisticated PCMS system can provide a firm with detailed evidence for an insurer that procedures are in place to detect problems early and reduce the future consequences by dealing with them effectively.

PCMS IT allows law firms to manage existing workloads to more easily determine where they
are positioned. Management means both understanding what is happening and exercising control to deal with change. An increasing number of RTA instructions might on the face of it appear
to be good news – but does the firm have the people resources to move them forward at
an acceptable pace and the cash resources to
fund disbursements?

Are instructions in other areas coming in at a reducing rate? How many firms were able, as the best were, to predict the dramatic fall-off in conveyancing instructions from the initial signs and take action to move resources from conveyancing to other areas before compulsory redundancies were required? Those collecting
and using their PCMS data intelligently were able to do so.

PI insurers demand to know about significant changes in income streams; whether this is planned or unplanned will expect appropriate attention to preserve the risk profile of the business. It is sound business sense to be on
top of the profile of the business and to proactively manage change, whether planned or reactionary. Work-type profile, client profiles, charge-out profiles (hourly or fixed) all represent changes
that need to be monitored and understood
across a firm; they collectively determine at a
high level the systematic risk to a firm based on its entire operation.

At the individual matter level, another spectrum of risks is encountered, which again needs process to minimise and monitoring to manage. Ensuring firm-wide compliance with SRA and statutory requirements across client inception, anti-money laundering, retainers, risk assessment and file reviews are all improved by systematisation, where possible using defined elements or steps controlled by the PCMS.

Audit trail

Systematic and constant checks for potential conflicts of interest, with key dates, undertakings and authorisations, for example, being recorded centrally onto the system, all help when renewing your PI cover. A system with an audit trail has more than the obvious benefit. Not only is it possible to spot difficulties, but staff are much more likely to follow procedures and take care over what they are doing if they know they are being ‘watched’. By reducing complaints and claims, and demonstrating effective levels of control, premiums can be reduced.

PCMS accounting reports will, among other things, also help to identify those client matters which have remained dormant for too long, or perhaps where a poor payment record exists. This may expose a client’s dissatisfaction with work undertaken and allow for a more proactive approach by the law firm into identifying problem areas, before they become a complaint; or highlight that credit chasing may be required.

As insurance proposal forms have become more searching they have become more difficult to complete. To achieve a satisfactory outcome, it is essential to have the information at your fingertips to answer the questions and to explain the situation. You should be able to use the flexibility of the PCMS to record and analyse type of work, the nature of the client base and the associated income streams to answer fully and completely the proposal questions without the need for assumptions or approximations; or the need to rely on self-reporting by individual fee-earners or departments; which, of course, may be neither accurate nor consistent.

Effective use of your PCMS is an essential element in minimising PI insurance premiums, and indeed managing your practice. A good PCMS will make your life easier when it comes to completing proposal forms – easier for you to demonstrate effective management practices, and easier for you to prove that your management of risk is as good as it should be. SJ

Jitendra Valera is the chief ?product and marketing officer ?of Advanced Legal ?www.advancedcomputersoftware.com/legal  

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