Changes to Solicitors Professional Indemnity
June, 2013
You will be pleased to hear that this year Solicitors Professional Indemnity rates will be fairly stable and at best begin to soften slightly.
Why Is Solicitors Professional Indemnity Premiums Significantly Higher Than Other Professions?
This is due to the market having suffered significant losses over the years. The traditional Solicitors Professional Indemnity market considers it nearly impossible to make a profit writing for this profession. Most insurers even consider Solicitors Professional Indemnity business already under-priced.
The Assigned Risk Pool (ARP); has been a source of many losses suffered by the market. They were set in place to cover those who were unable to obtain a quote from the ‘open market’; however insurers in the Solicitors Professional Indemnity market were responsible to pay for any losses that emanated from the ARP as well as their own share in the ‘open market’.
The ARP has now been dissolved as a result of this and it has been universally hailed as a good decision, however, the replacement provisions do mean that the last insurer on risk has to offer an extension to any firm which cannot obtain renewal from either themselves, or any other insurers.
There is a high likelihood that firms that are in this position will be struggling financially and usually have a lot of claims. Underwriters are trying to factor in these additional risk exposures into their premium rates, but are unlikely to be able to determine the real impact until they have seen a few further years of claims in the market.
There is also a concern Solicitors Regulation Authority (SRA), does not intervene quickly enough when firms are distressed, leaving firms still practising when they should have been closed down.
Could New Insurers Coming Into Solicitors Professional Indemnity Help Rates?
The answer is yes, they can sometimes help soften rates however, the only new insurer entering this market this year is Beazley and they’re only looking at firms making a turnover of £100m+.
On a brighter note, German insurer, Berliner Versicherung Aktiengesellschaft has been entered as a capacity provider (someone who provides the capital to an underwriter to cover the risks of businesses), for Apro Management Scheme, this is to replace capacity provider Balva. Balva are likely to be able to write business in the future but for now they will not be playing any part in the market, at least via Apro. It was news to find out the Latvian company are restricted by their regulator after having their licence suspended. Apro made arrangements with Berliner to take over the capacity from Balva in order for them to offer renewal terms to their existing customers.
Elite, who are well known in the legal insurance market, will also be participating in Solicitors Professional Indemnity again this year. It has been said that they are looking to expand their book after surprisingly entering late last year; this company are known for their extensive participation in the After the Event (ATE) insurance market.
Common Renewal Date Finally Being Abolished?
Insurers such as Apro are offering renewal terms to existing clients where they can run their policies until 1st May, if they wish to move from the traditional 1st October renewal date. This has been proposed in order to suit clients, to avoid stress, uncertainty and the tight time restrictions. So many will start to see Solicitors Professional Indemnity renewal dates moving away from the 1st October and more insurers’ options such as this.
What’s The Current State of The Market?
At present many insurers in the Solicitors Professional Indemnity market close ahead of the October renewal date, preparing themselves for renewals and assessing their annual rates for the up and coming season. So therefore, it is uncertain as to how many insurers will be open for new business at this time of year. It may be also worth waiting a year before moving to see the state of the market.
Is Merging An Option For Your Business?
One option that should be considered prior to renewal is merging your firm with another to try and reduce costs of Solicitors PII. We also recommend looking into this option, as early as possible ahead of renewal, giving your brokers ample time to negotiate with underwriters on your behalf, it will help ease the pressure. For those who are proposing to add another firm to their cover through a merger or takeover, it should be noted that insurers will want to see claims history for the last 5/6 years for the other firm. Even if the other firm purchases run-off cover, underwriters will still want to know the details of the other firm and whilst they may not be liable for the prior liabilities, insurers will be concerned about how new staff and partners have performed in the past.
If you have any queries or comments on Solicitors Professional Indemnity that you would like to share with us, please contact us.
