As insurers pull out of the market, up to 500 solicitors’ firms may be forced into the assigned risk pool
The number of small to medium-sized law firms unable to afford professional indemnity cover during this year’s renewals season is set to more than double from last year.
As insurers continue to lessen exposure to the market by hiking rates for firms with four partners or less, more are expected to be forced into the assigned risk pool (ARP). The ARP provides insurance for firms that cannot get cover in the commercial market.
Since 2000, the average number of firms in the ARP has ranged from 20 to 30. But this number rose to 150 last year, and sources are predicting it could surge to as many as 500 this year.
Lockton executive director Steve Holland said: “Most people believe the number will be significantly higher. There is quite a danger that we will end up with that level of firms (500).” He added that conveyancy practices would be most at risk.
United Insurance Brokers divisional director Simon Lovat said that rates had already increased by as much as 50% for some smaller firms.
“There is a trend for insurers to be pulling out of that market. We have seen significant rate rises, and some firms are not being offered insurance as they previously would have been,” he said.
Zurich legal professions manager Jenny Screech refused to be drawn on how much the insurance giant was planning to increase rates, but confirmed it would be a “significant” increase on last year.
“The market has been under-priced for some time. To ensure that we have a sustainable book, we have needed to increase rates,” she said.
Screech added that the insurance giant had reduced its client base by 20% last year, and would continue to be vigilant when screening new business. “Our focus is on our renewals book,” she said. “As far as new business, we have an extremely cautious approach to firms with one to four solicitors and certainly more appetite for larger firms.”
Screech added that new entrants XL Insurance and Hannover Re were unlikely to alter the upward pressure on premiums.
“Some of them will have a restricted appetite for certain firms, as the rest of the market has a restricted appetite at the moment. So despite the fact that there are new players in the market, some firms are unfortunately going to find it difficult to get terms.”