As the deadline for solicitor PI renewals approaches, Andrew Holt asks why the vast majority of legal firms have done nothing about it yet
With the deadline for solicitor professional indemnity (PI) renewals fast approaching a new report warns that the vast majority of legal firms still have to renew and that they remain apathetic about it, especially when using a broker.
The research by PI specialist broker PYV says that more than eight in ten firms have not yet renewed their PI insurance, despite the deadline being 1 October, and more than four in ten legal practices have not changed their broker in the last four years. PYV says this indicates that many solicitors are apathetic about the situation, simply sticking with their current broker.
Nick Pointon, director of PYV, says: "I am shocked that so many firms stay with their brokers for so long. Solicitors firms need to be shopping around every year to make sure they get the best deal ahead of the 1 October deadline."
It is debatable, however, that firms staying with one broker is a sign of apathy.
Hugh Price, director of insurance at Cardiff-based Hugh James Solicitors, comments: "I do not agree that lawyers are apathetic, merely reluctant to start a new relationship where the old one works OK. As the Americans often put it: 'If it ain't broke, don't fix it'."
And he adds: "My experience here is that, traditionally, solicitors do tend to be fairly loyal to the broker that has serviced their
PI needs since the solicitor indemnity fund closed down in 2000."
Frank Maher, partner at solicitor risk management firm Legal Risk, agrees: "I don't think a failure to change broker is necessarily a sign of apathy. After all, most businesses don't change other advisers, their accountants or, for that matter, their lawyers that often."
And Steve Holland, a director at Alexander Forbes Professions, says that as long as brokers are doing their job, solicitors' commitment to the same broker is valid.
"Provided the broker is seeking quotations from alternative insurers the client is not being disadvantaged by remaining loyal. There are advantages in using a specialist broker due to its market clout both in terms of price, wordings, claims service, risk management advice, advice on mergers and benchmarking."
Maher adds that typically larger firms probably have closer relationships with their brokers because the size of the premium and fee warrants investment in the relationship by the broker.
Last year, Legal Risk's own survey of the Top 100 law firms found that only 7% of respondents changed broker. In each case there was a reason for it - split equally between service and cost of cover.
That said, Maher says he expects more change this year. "This year I believe there will be far more firms changing broker due to movement of key individuals within the broking profession. This will not only be an issue in relation to large firms but will impact on volume business where there are changes in placing brokers.
"There will also be a knock-on effect because newly appointed brokers are more likely to flex their muscles negotiating with insurers, which will probably mean more firms change their insurer too."
But more than four in ten legal practices that have bought their professional indemnity insurance this year have paid up to 20% less than last year.
Yet, of those firms who expect to see a hike in their PI premium, a quarter believe it is because they will be paying for other firms' claims and not their own.
Pointon says: "For those that do expect to see a hike in their premium because they believe they will be paying for other firms' claims, they definitely need to consider switching broker."
Price says: "The issue as to premium hikes being caused by other firms is partly true, but is not the complete picture. The market tends to set premium 'bandings' depending on the nature of the risk.
"Personal injury and conveyancing have long been high-risk practices, whereas crime and immigration are low - this is where the market experience of claims cuts in.
"Thereafter, underwriters will and should look at a number of features, including the size of the firm, the type of work it specialises in, its claims record and its overall risk management strategy and practice - such as, does it take PI risk seriously?
"The fact that so many firms are apparently behind with placing their business is not surprising as all law firms have to be covered from the same date hence the last minute scramble. The Law Society did promise it would look into this, but as far as I am aware it has not changed."
Maher disputes the argument that premium hikes are caused by other firms. He says he has not heard of any examples of premium hikes for firms without their own claims issues to contend with.
"I think there is too much competition at the moment for it to be otherwise. I can't see that firms should be paying higher premiums for other firms' claims in this market."
Holland agrees: "Unless there are good reasons, firms should not be seeing premium hikes this year. The market remains soft and most firms should be seeing rating reductions."
And overall the news is indeed good, as those firms that have so far renewed their PI insurance have seen a drop of 20%, especially in light of the fact that many legal firms have seen their income go up this year. "This is largely due to the increased competition within the marketplace. There are now more brokers than ever vying to get business," says Pointon.
PI rates have steadily been going down for the last two to three years. But Pointon adds: "For firms to see a drop of up to 20% is obviously good news for them. However, it is very worrying that nearly eight in ten firms say they have not renewed their PI insurance yet, a last minute rush will not help firms get the best deal."
But according to Maher the delay is nothing to worry about. Legal Risks' Top 100 survey last year identified that over 80% of the action would be expected in the last three weeks prior to 1 October. "Last year, nearly a third renewed in the last week. Under 12% renewed before September," he says.
And he adds: "Some of the firms who have not renewed will already have a quotation they could accept but will be hanging on, waiting to see if there are better deals, either from other insurers or their existing broker."
When asked what percentage of the firm's total income is allocated to professional indemnity cover, 15% of sole practitioners said they allocated less than 2%, while 25% of small firms and 33% of medium firms allocated the same amount.
Worryingly, more than half (55%) of legal practices surveyed said that their firm did not have an up-to-date disaster recovery plan or were not sure if they had one. While more than six in ten (67%) solicitors said they did not know enough about the current Legal Services Bill and its proposed effects to judge whether it would lead to an increase in PI premiums.
But Price says that this has to be seen in the context of all the issues legal firms have to currently deal with and prioritise.
"The legal profession is going through a period of enormous change. We have Clementi to consider. This is likely to have an impact on the lawyers' usual profitable work such as conveyancing, wills and probate and claimant personal injury by it all becoming commoditised.
"There is also the huge uncertainty as to the future funding of claims. You just have to look at the recent cases in the courts on after-the-event (ATE) and before-the-event (BTE), plus conditional fee agreements. The BTE writers are very defensive of their panel firms, making less work available for the many and more for the few."
The TAG litigation has also shown how fragile the legal profession is and how easily it succumbs to something of a lemming mentality: if it's OK for one firm it must be OK for mine.
And add to this, the Carter Report on legal aid and it could be that a lot of the smaller firms feel under considerable attack.
"For the corporate practices things are rather different, but they are very much in the minority of law firms on a national basis," says Price.
But the long-term broker-solicitor relationship is a good thing when dealing with this cover. "PI cover is an area where relationship and service really do count.
It is not a commodity purchase and I rather doubt it ever will be," says Price. IT