Smaller firms would have received the attention they deserved as long as they had sent in their renewal submissions many weeks in advance of the 31 August 2002 deadline.
Too many firms leave it too late to send a presentable and accurate proposal to their broker or insurer. Early renewals are available for many firms through various professional indemnity (PI) insurance placements managed by Alexander Forbes Professions.
But, despite early renewals, brokers are still subject to the whim of insurers in providing quotes for the whole profession within a limited time.
The fact that solicitors have mandatory minimum policy terms and conditions is no different from any other profession - surveyors and accountants all have to comply with standard minimum policy wordings. Larger firms may ask their broker to negotiate policy terms on their behalf and they are often broader than the mandatory minimum cover.
Wide PI cover was put in place to protect public interest. It is our view that wide policy wordings may not really have an impact on premium rates and therefore, any restrictions would not necessarily lead to a reduction in premium prices.
Some experts may argue that the majority of claims in the profession come from events that are primarily based on negligence, such as missed time limits. This implies that a narrow wording would not make a significant difference.
Fraud cover is currently available within the solicitors' PI wording which, some parties argue, widens underwriters' exposure - again most of the UK professions have such insurance protection.
The argument that the profession will call for a return to SIF does not stand, especially due to the fact that premiums are still less than they were two years ago. Premium income in the open market was £175m in 2001 compared with £250m to SIF in 1999.
We would predict that this year it will still only be £200m, so the profession is still paying well below what it did under SIF.
Also, one has to remember that the reason the profession moved away from SIF was because it was unworkable, because it was becoming too expensive and because it did not provide the mechanism for identifying the poorly managed firms in the profession.
The commercial market rates firms individually on their claims experience. Many firms are experiencing renewal premiums this year from insurers which reflect good value for money on the basis of increased fee income.
The commercial market is making sure that the risk of professional negligence is being transferred out of the profession, whereas under the mutual arrangement, the profession was responsible for insuring its own risk exposure.
With regard to the comments about primary cover for smaller firms, we believe the number of firms that will see multiples of premium increases will be minimal. Real pricing increases have occurred on the excess layers, which will not affect smaller firms or sole practitioners. Excess layers have been notoriously underpriced for many years, so an increase in rates is necessary across all professions, not just UK law firms.
It is true that there are few qualifiying insurers who are interested in sole practitioners and small firms, but some brokers have access to specialist PI schemes for the smaller end of the market.
As a specialist PI Lloyd's broker, if you want to be in this business and provide a service to firms of solicitors, you have to work hard for your clients throughout the year.
It is pointless to be reactive in the short term and hope there will be an underwriter at the end of the year that will insure your client.
UK PI insurers are at their busiest time in August and need to work with brokers who have planned their approach and are organised in their presentation of risks to the market.
We are not convinced that new capital in Bermuda is a misnomer. As a broker, Alexander Forbes knows that insurers in Bermuda are available for excess layers. We may advise this route for particular clients who require higher limits.
This availability of cover may alleviate some of the capacity issues but would not be relevant for smaller firms who may take advantage of straightforward placements.
To conclude, we believe solicitors are benefiting, and will continue to do so from the open market in PI insurance.
However, there are some firms which need to take risk management more seriously. When they do they will begin to reap the benefits of the open market more fully.
If all else fails, the Assigned Risk Pool, albeit punitive, is the final safety net.
Trevor Moss
Director
Alexander Forbes
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letters@instimes.co.uk or fax: 020 7618 3499
