The St Paul has clinched an exclusive contract to run the Law Society's professional indemnity (PI) scheme.
St Paul, which beat 15 rivals for the contract, is now favourite to win a substantial share of the £250 million of solicitor's professional indemnity premiums that will be released to the open market on September 1. Its premium income for 1998 was £109m.
The one-off event followed the Law Society agreement last June to scrap its mutual fund, the Solicitors Indemnity Fund, which had a monopoly on the first £1m of professional indemnity bought by a firm of solicitors.
In effect, about 15,000 firms will have the choice in September between obtaining cover through the Managing General Agency (MGA) scheme and St Paul or from an individual approved insurer.
"This is fantastic news for the St Paul and will have a dramatic impact on our annual premium income at a time when we have ambitious growth plans for our business," said David Bevan, St Paul deputy general manager.
But there will be fierce competition from other insurers for this professional indemnity market, which has long been a contentious issue in solicitor circles.
Many solicitor firms will be seeking cheaper premiums after years of paying more than their fair share because SIF spread the larger liabilities of rivals.
More than 20,000 solicitors voted in favour of the open market rather than keeping SIF. This followed resentment over SIF's £400m shortfall, caused by the late 1980s conveyancing boom and collapse of the property market.
Trevor Moss, a director at the broker Alexander Forbes, believes the current £250m SIF pot will shrink by as much as half because of cheaper premiums.
"Many of the firms we have spoken to are looking for premium reductions of up to 60%," he said. "About £50m of the SIF pot goes to pay for the shortfall, which means the SIF market could shrink to £100m."
The composition of market share after September will depend on the strategy of insurers and brokers.
But SIF has yet to release its records to the insurance market, thus enabling underwriters to determine rates.
"SIF is expected to release its actuarial tables and data to approved insurers and brokers by next month," said Tim Jaggs, a director at Blanch Crawley Warren.
"But there are a number of insurers offering cover for firms that needed top up above the £1m mark. The real race is for the small and medium sized firm."
Under the deal, the MGA will use most of the existing staff and infrastructure of the Solicitors Indemnity Fund but the commercial risk will be carried by St Paul.
St Paul will also be free to offer cover above the £1m PI limit of SIF. But it will not have to cover extremely poor risks.
The Law Society is setting up an assigned pool for these firms where the risk will be shared by all the insurers which are offering professional indemnity policies.