Renewing your Solicitors PII in 2022

Published: Wednesday, 6 July 2022

Insurers choose the solicitor markets they want to target

Understand how the insurance market views your firm

Renewals are more expensive and more challenging

For many years, it seemed a straight-forward procedure for many legal firms to renew their Professional Indemnity Insurance (PII) cover, but I am afraid to say that that has changed over the past 2 years. If you are renewing in 2022, it is inevitable that you will find things tougher and less straight-forward than you have for some time. Premiums have increased as competition for business has decreased. Gone are longer term policies and automatic renewals.

Why is that?

In line with many business sectors, Insurance has found trading conditions over the last few years tough as claims escalated from a variety of sources and the legal sector, specifically, has experienced rising claims. It is also expected that claims will follow as we face the fall out of the unique circumstances that the Covid pandemic has brought. This has led to a restriction in the number of insurers willing to cover Solicitors both at primary and excess layer level, and an increase in pressure from Lloyds to underwrite profitably.

It is therefore a time to take a harder look at how you will renew this year and the procedures necessary to minimise the financial impact on your firm.

You need to understand how the insurance market really works and to present yourself in the right way, to the right underwriters, through the right channels.

How should you approach your renewal?

Number of Partners, Directors or Members

First of all, do you appreciate just how much difference the number of Partners (Directors or Members) makes to which brokers you should work with? For firms below ten partners there are multiple arrangements and “exclusives” in place between brokers and insurers. These can change depending on how many partners you have. Over ten partners and you'll need a different approach. Do you know who has these exclusives and are you accessing all the underwriters you need to?

Work Profile

Insurers have different appetites depending on the type of work you do. For example, conveyancing is generally accepted as one of the most risky and exposed areas of legal practice. As a result, some insurers will not insure a firm that does ANY conveyancing at all whereas others may have a cut off point that could be 20, 25 or 50% of your fee income. Cross this point and it will be a “NO”. Do you know who these insurers are, and do you monitor how your work splits may be changing?

Expertise

Insurers like specialists. You have developed a real understanding and knowledge within your field that sets you apart from the rest and many will reward you for this. Are you making sure that this expertise comes across when presenting yourselves to underwriters?

Do not assume that an insurer will have the same in-depth knowledge as you do. You should use the renewal presentation as an opportunity to educate and re-enforce the message that you and your firm really understand your area of the law. Remember to cover the potential pitfalls as well as the positives – underwriters will respond to those that can display knowledge of where claims can come from and how they are to be avoided.

Covid

Covid has brought huge changes to all, and the Legal sector is no exception, both financially and structurally. The same is true of the insurers you are trying to impress. The underwriter that is looking at your firm will be looking for you, and the managers of the firm, to explain how Covid has affected your working practices. For example, how is supervision of staff and colleagues effective when people are working at home and not in an office? How are you ensuring that all work is compliant and accurate? If you are Conveyancers, how did you manage the demands and pressures of the SDLT holiday?

Cyber

Cyber is a growing issue too. Solicitors are a high-level target due to the amount of confidential information and the size of client funds they hold. How well are you protected? Is your IT approach up to scratch and have you bought a separate Cyber policy? Underwriters will want to be reassured that you are taking cyber security seriously as claims can be very expensive. Colin Fox, our cyber consultant discusses cyber in more detail below.

Financial stability of your firm

How have you been impacted financially by the events of the past few years? Insurers have a vested interest in the long-term viability of your firm because they will have to insure you in run-off for a further six years if your firm fails – and that is true even if the premium is not paid. So, they will want to know how you have survived Covid, how you are planning to cope with rising costs and what the future stability of your firm looks like. It may not matter that income is down or that staff numbers had to be reduced. These can be seen as natural and prudent in ensuring your business is still here and ready to bounce back.

Full disclosure

Are there any rumbling problems that could cause you uncertainty or that may need alternative solutions? A large claim, perhaps, or a disciplinary matter. If this is the case, disclose this to Insurers sooner rather than later. Insurers are not as understanding as perhaps they once were and the consequences of hanging on and hoping for the best could be severe. A better approach is to be proactive in realising the potential danger and mitigating the impact. Put a fallback strategy in place should your underwriter penalise you through unaffordable premium increases or, worse, declining to renew.

Presentation of your risk

The presentation is key - so true and yet so often overlooked. Firms that take the presentation of their risk seriously, and as part of an ongoing dialogue with the underwriter, gain long term stability in both premium and Insurer relationship. Do not just rely on the proposal form, or the additional forms that you will receive covering specific work areas or COVID to give the full picture of your firm. These give the bare bones only and you should go beyond this in explaining how these issues affect your firm, outlining how you identify and manage the risks involved.

Finally, and I appreciate you have heard this many times before, do not leave this renewal late but plan several months ahead particularly if you may have a 'trickier' renewal due to any of the factors mentioned above. Work with a broker that will explain the options you have in full and with honesty. A little upfront work will help you take back control!

Richard Brown
Consultant

Cyber considerations for law firms

The cyber risk landscape continues to evolve at an alarming rate with ransomware and phishing attacks still being the prominent threat vectors utilised by hackers. Ransomware attacks are now at a higher rate compared to this time last year and 90% of data breaches are as a result of phishing attacks. These form of attacks can lead to significant financial loss to both yourselves and third parties.

Whilst currently there still remains an element of third party coverage under a professional indemnity policy this is not a substitute for a stand-alone specific cyber insurance policy where first party costs and damages are covered. Most importantly this form of policy provides incident response costs in the event of a compromise of your computer systems. This is available on a 24/7 basis with access to a panel of experts who can help manage and guide you through the rigors of such an incident.

As technology develops practices are becoming increasingly reliant on IT for the everyday running of the business and the provision of services to clients. The management of risks associated with cyber will therefore becoming increasingly important. Cyber insurance can be purchased as a risk transfer mechanism for elements of cyber security risks that are perceived as too onerous to retain or exposures where balance sheet protection is not available.

The cyber insurance market has gone through a period of realignment in terms of premiums charged and policy coverage provided . This has been due to an increase in claims and low levels of cyber maturity that have existed due to the poor standard generally of cyber security controls. Cyber insurance is now a more mature product and having gone through the “growing pains“ of a relatively new form of insurance and this should be considered by all practices as part of their overriding approach to cyber risk management.

Colin Fox
Cyber Consultant

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