Solicitor firms are facing a massive hike in professional indemnity (PI) premiums as the market gears up for its first renewal season after the Solicitors' Indemnity Fund (SIF) was deregulated by the Law Society.
The compulsory mutual SIF was wound up by the Law Society in September 2000, and more than 9,500 solicitor firms are obliged to renew their cover with any of 34 replacement insurers on the common date of September 1.
PI insurer St Paul said rates would need to rise significantly because the market was hugely underpriced in 2000, the first year of deregulation.
St Paul spokesman Peter Elliot said: “We are expecting to see some increases in solicitors' professional indemnity rates from our competitors. In its last year of operation the SIF had premiums of £250m but last year the market collected only £160m.”
Elliot said St Paul did not anticipate it would have to increase its PI solicitor premiums, and may in some cases be able to reduce rates.
He said: “We were anxious at this time last year to set prices which were realistic and sustainable. We do not think that other insurers got their prices right. We believe the market has been underpriced.”
Professional indemnity broker PYV is predicting modest increases in premiums for solicitors, although it believes individual firms may be able to reduce their specific premium.
PYV director Michael Rendell said: “When prices are unveiled, PYV is expecting to see a modest increase in premiums of perhaps around 5% – although clearly we will be haggling with insurance companies on behalf of clients to minimise any increases or to find scope for lower premiums.”
He confirmed St Paul's belief that last year's market was underpriced. “Given that a typical practice made a 40% saving on its PI bill last year, in overall terms solicitors are still doing very well since moving to an open market,” he said.