Ace and Norwich Union join list of insurers withdrawing cover from small law firms less than a month before renewals deadline.

Brokers are predicting a potential crisis in the solicitors’ professional indemnity market as insurers continued to withdraw cover from smaller law firms this week.

Ace hiked its minimum premium for firms from £20,000 to £50,000 on Monday, effectively pricing itself out of the market for smaller firms, said brokers.

Other insurers that have recently left the sector or reduced their exposure include Norwich Union, Liberty International Underwriters, Novae and RSA.

Simon Lovat, divisional director of United Insurance Brokers' UK Professional Indemnity division, said: “This is the worst year for a number of years, probably since 2003 on the back of the 9/11 attacks.”

Last month Norwich Union said it would no longer write new business for firms with fewer than 10 partners if the firm carries out conveyancing work.

An NU spokesperson said the move was a result of the credit crunch and mortgage fraud. She said: “With the current economic environment as it is, we need to factor that in as we look at our portfolio.”

Liberty International Underwriters is also cutting its exposure to new business. It will only offer cover to firms with at least three partners and only if conveyancing accounts for less than 40% of the firm’s business.

Novae confirmed it stopped writing primary-layer solicitors’ PI cover in July.

Insurance Times reported in July that RSA would no longer write new business for one and two-person firms, although it is still offering renewals for those companies.

The deadline for solicitors renewing their PI cover is now less than a month away, on 1 October.

Tony Blyfield, chief executive of Prime Professions (PI), said brokers could face chaos as the deadline approaches.

“The difficulties that clients are going to be facing are that a lot of insurers are holding back releasing terms. In some cases it’s the brokers holding back the terms,” he said.

“That is going to lead to a lot of people having to look for alternative quotes late in the month, which is going to cause a lot of frustration in the profession.”

Lovat warned that it would be more difficult to negotiate good deals at the last minute.

“Solicitors have always had it so good with last-minute deals, but I don’t think they’re going to be able to get that this year,” he said.

“The market has driven itself into a position of being so unprofitable now that everybody is just trying to walk away from it. It’s a market cycle but a self-imposed market cycle.”

He added that small firms’ margins could be squeezed as a result of the price increases, leading to an increased credit risk exposure for insurers.

According to Law Society figures from July 2007, there were 10,114 private practice law firms. Of these, 95% had 10 or fewer partners, while 85.9% had four partners or fewer.

Lovat added: “The industry needs to start looking at what is going to happen at the end of this month.

“Is everybody going to jump back in or is everybody going to pull out and we’ve got a real problem to deal with?”

Ace was unavailable for comment.