Briefing: Looking back at a history of problems in the solicitors’ PI market

Solicitors should be worried. According to Law Society president Simon Davis, solicitors’ professional indemnity premiums are likely to rocket by 30%, or even higher for those with poor claims histories.

He warned that it could be “the most challenging period for solicitors since the insurance market opened up in 2000”.

That is saying something because the solicitors’ professional indemnity market has been besieged by problems for many years.

Here Insurance Times looks back, in order of severity, on the top five problems to hit the market…

 5. Dodgy insurers 

Solicitors’ professional indemnity has been a haven for dodgy and unrated insurers. The last insurer to collapse was CBL, which was put into liquidation 18 months ago. CBL relied on unstable reinsurance to underpin the business.

Poor reinsurance is often the cause of failure for unrated solicitors’ PI carriers. 

The most egregious example of a dodgy business being allowed to trade in solicitors’ PI was back in the early 2010s.

Israeli businessman Shay Jacob Reches caused havoc in the market with his reckless behaviour, leading to countless solicitors being left without adequate cover. 

Reches directed customer money away from the insurers and reinsurers that were meant to be paying the claims. 

Reches and a string of other individuals involved in solicitors’ PI received FCA fines totalling £15.5m in 2016. Several insurance schemes and three carriers went into administration due to his misconduct.

The episode showed how out of the control the market had become, with desperate brokers doing anything to find cheap premiums for their hard-pressed solicitors. 

 4. Claims 

You may think solicitors are upstanding members of the community, but in fact they are a source of unpredictable claims for insurers - with fraud being one of the major problems. 

Fraudulent solicitors in conveyancing has been a particular problem over the years.

Aside from that, smaller solicitors are especially vulnerable to claims. They lack the resources, compared to larger firms, to oversee all the checks and balances which prevent them being sued.

When things go wrong, particularly in areas such as property, the solicitors are blamed and sued. 

The tail for claims can be quite long, meaning an insurer’s reserving and underwriting must be robust to withstand claims coming out of the woodwork.

3. Solicitors failing to get cover 

Smaller law firms especially struggle to cover the costs of their professional indemnity premiums. This leads to numerous solicitors failing to get cover. Without the cover, they cannot trade.

In 2013, Insurance Times reported how numerous firms failed to get cover. 

2. Capricious capacity 

Insurers’ appetites vary from year to year for solicitors’ professional indemnity. 

Brokers complain a capacity shortage for competitive premiums has led to cheaper unrated placement. 

Last year, Aon’s MGA Maven pulled out of the market. 

Aon cited the Lloyd’s profitability review as a key driver for this, adding that a number of its peers had also scaled back in this market. 

The good news is that this year has seen a number of providers upping their game. For example, Pen signed a deal to write more capacity last month, while Inperio and Accredited have teamed up to provide cover for freelance solicitors. 

1. Unpredictable rates 

This year looks to be particularly brutal with 30% rate increases. However, rates can vary from year to year making the market unpredictable and volatile.

In 2016, lawyers were enjoying the softest market in years, as reported by Insurance Times. 

Two years later, solicitors were warned by the Law Society that ”the market is hardening”.

Now, it is the hardest market in 20 years. 

This volatility is tough for clients, especially smaller firms that struggle to plan for the big hikes. 

Read more…Insurance industry left to shoulder risk in Grenfell fire aftermath 

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