Insurer security cited as neglected factor

Professional indemnity quotations for law firms are being issued with warnings from intermediaries that the insurer does not meet the requirements of their market security committee, according to Aon.

This worrying new development means that law firms must make insurer security their number one consideration in deciding on the placement of their PI insurance.

Angus Cameron, executive director for professional risks at Aon, commented: "I'm very surprised that the Solicitors Regulation Authority (SRA) and their advisers on professional indemnity do not consult with the major professional indemnity brokers on which insurers are approved by their market security teams.

“We've heard that some brokers are issuing quotations with warnings on insurers which do not meet the requirements of the brokers' market security committees. Our experience shows that many three and more partner firms are dismissing the quotations with unacceptable security.

“However smaller firms – and in particular sole practitioners – who make the placement decision on their own must ensure they make detailed enquiries and seek independent advice regarding insurer security."

Aon says that if an insurer fails to meet its liabilities it is the legal firms and their reputations that will suffer, along with their clients whose claims are not paid. It added that it is the responsibility of The Law Society and the SRA to ensure that measures are in place to protect the public from erroneous advice from their members. Firms should not accept any quotation until they have received it in writing and have fully reviewed and understood the implications of the providers' comments on market security, taking independent advice where necessary.

Cameron continued: "PI claims often take many years to settle so it is the insurers' ability to pay in the long run that counts, especially following several examples of failed insurers over the years. Writing large volumes of solicitors' PI business at below market rates could be a disaster waiting to happen, particularly in a market that has an alleged combined loss ratio of 160%."

Leading up to the renewal, Aon recommends that solicitors should ask the following questions of their prospective insurer:

• is it a strong company in terms of the capital base?

• do the technical reserves appear to be sufficient for the type of business being written?

• is the company part of a large insurance group that can reasonably be expected to be trading in five years time?

• what is the opinion of the rating agency on a particular carrier?