Unrated insurers ERIC and Alpha snapped up over £8m of business apiece

XL Insurance has shown the greatest appetite for UK solicitors’ professional indemnity (PI) insurance for the year ending 1 October, writing £46.7m of premium, giving it a 18.2% market share.

The insurer wrote £28.4m the previous year and was the third-largest insurer in the sector, according to Capita figures seen by Insurance Times.

The top insurer last year, Chartis UK, wrote £22.6m of premium this year and dropped to become the sixth-largest insurer in solicitors’ PI. This is in line with its decision to stop writing new business to focus on renewals.

Unrated newcomer European Risk Insurance Company (ERIC) picked up £8.33m of business in the past year from a standing start, making it the eleventh-largest player with 3.26% of the market. Also unrated Alpha Insurance wrote £8.6m of business this year, up from £1.8m the year before.

Brokers have expressed concern over unrated insurers. The Solicitors Regulation Authority is consulting the industry on whether to rewrite the qualifying insurers agreement (QIA) to include insurer ratings.

The amount of premium in the solicitors’ PI market has risen by £42.2m to £255.7m at the 2011-12 renewal. This means that written premiums for this year are the highest since records were started in 2000.

Some of this rise can be attributed to the SRA crackdown on the minimisation techniques some insurers used last year to under-declare how much premium they had written.

These techniques exploited loopholes in the QIA to reduce insurers’ exposure to punishing assigned risk pool (ARP) costs, which are worked out according to insurer market share. Sources said this practice exploded in the run-up to the 2010-11 renewal, leading to an apparent multimillion-pound reduction in the size of the market. Declared premium for 2010-11 was £213.5m, compared to £241.4m the previous year. The SRA reworded the qualifying insurers’ agreement earlier this year to remove these underwriting loopholes.

Lemma Europe, Aspen Insurance, A G Dore and the Solicitors Indemnity Mutual Insurance Association (SIMIA) all left the solicitors’ PI market this year. Lemma Europe wrote no business in time for this year’s renewal, as it only decided to stay in the market weeks before the 1 October renewal deadline.

Lemma was put off by the competitive market and expensive ARP charges, according to Lemma Europe deputy underwriting manager Oliver Moss. The insurer hopes to write some solicitors’ PI during the year, said Lemma Europe underwriter Steven Blair, and will concentrate on smaller firms. “We should have sufficient capacity for whatever is available in our section of the market,” he said.

Aspen said it would only write excess layers this year, while SIMIA went into run-off after increasing claims experience hiked its premium costs for its members.

Pass notes: The assigned risk pool

What were some of the minimisation techniques used?
Some insurers would squeeze large amounts of premium into the policy layers that did not need to be reported to the SRA. Another tactic was to sell a law firm a policy with a large excess, then sell a second infill policy to cover the cost of the excess. The infill policy did not need to be reported. Some of the minimisation techniques were also known in underwriting slang as ‘swerving’, ‘loading’ or ‘flipping’.

What is the state of play with the ARP now?
The ARP currently has 32 firms in it, a huge drop from the 309 firms that were in the pool this
time last year. This year, insurers have shown a greater appetite for the smaller partner law firms that typically fall into the pool. If this number stays low, then qualifying insurers are better off, because they will pay less in ARP costs and cash calls. ARP costs for insurers have soared since 2008, and peaked last year when insurers were hit by a £38.6m cash call.

Talking points …

● How much of the £42.2m increase in declared premiums is the result of the crackdown on premium minimisation techniques?
● Could this year’s premium rise also be linked to claims that some brokers have not been negotiating hard enough with insurers to get their clients the best deals, as some have suggested?