Legal Risk’s Frank Maher assesses the moves in the market
Solicitors’ professional indemnity figures are down on last year. All solicitors in England and Wales were required to renew their professional indemnity by 1 October – 8,926 practices, according to the most recent Law Society figures.
This requirement was for compulsory cover only, £2m for sole practitioners and partnerships, £3m for incorporated practices – though many renewed excess layers too.
“In due course the burning issue may not be about rates, but whether there is enough capacity in the market
The official figures showing total premium spend and market share are not yet available.
Winners and losers in the scramble for cover
Certainly there have been winners and losers among insurers.
Some insurers sustained significant losses in the early years, but others have reported year-on-year profit â€“ although recent years are not yet fully matured.
Most firms saved money this time. Some insurers tried to resist market forces and increase premiums giving firms every incentive to move.
Others solicitors changed insurers, including a handful of the larger firms which generally stay loyal to their insurers for reasons of continuity and confidence in claims handling.
Only 3% of firms responding to Legal Riskâ€™s Top 100 Professional Indemnity and Risk Management Survey 2007 changed insurers last year.
As usual, most of the renewal activity came near deadline.
Among the top 100 firms responding to the same survey last year, two thirds renewed in the last fortnight of September and a remarkable 45% in the last week.
Late renewal came at an unexpected price for some firms. The late submissions of their proposal forms resulted in their existing insurers declining renewal.
In some cases the refusals were due to potential mortgage-lender claims, some involving investigations into potential fraud. Brokers may have forgotten the lessons from claims arising out of solicitorsâ€™ duties to lenders back in the 1990s, or maybe they were under pressures in a high volume/low cost operations with little solicitor input.
Some firms found their position more difficult because their brokers operated a scheme and could not approach other insurers on their behalf. This is not a criticism of the schemes which serve a useful purpose, but a warning to firms that it is vital not to leave renewal to the last minute.
Some might also have found, if they renewed early, that they could have done so before the problem claims emerged.
Those firms in this situation faced potential punishing premiums in the assigned risks pool, which provides cover, broadly, for up to two years, for those who cannot obtain it in the commercial market.
Premiums can be as high as 25% of fee income, so perhaps not surprisingly there are insurers willing to take on these more difficult cases, offering some savings on those figures. Some of these solicitors firms were required to ensure they had done a comprehensive notification of circumstances to their previous insurers.
Other firms are conscious that they have moved to insurers with lower security
ratings than their previous insurers, albeit they may have been compelled to make the move.
But it is no part of the Law Societyâ€™s or Solicitors Regulation Authorityâ€™s job, as some have suggested, to vet insurers for financial strength, and they are not equipped to do so.
The lower-rated insurers are â€˜qualifying insurersâ€™ not â€˜approved insurersâ€™, and need only be authorised and regulated by the qualifying insurers agreement with the Law Society. The responsibility for checking financial security lies solely with the FSA.
General opinion seems to be that there is no reason to think much will change next year. In due course, the burning issue may not be about rates, but whether there is enough capacity in the market.
That might arise because of claims experience, or simply a decision by a major insurer to pull out of the market, perhaps for reasons which relate to its business planning at head office level somewhere overseas, rather than anything intrinsically wrong with writing
Frank Maher is a partner in Legal Risk Solicitors