Professional Indemnity Insurance cover for solicitors could become unsustainable if underwriters are not allowed to cancel policies where the premium is not paid, the International Underwriting Association has warned. The association has been in discussion with the SRA about the minimum terms and conditions of such policies and has now set out its concerns in an open letter to the legal industry. The International Underwriting Association calls for a right to cancel cover if premiums are not met, particularly for run-off cover, and the payment of excesses on a policy to be mandatory.
Without such measures it is likely that insurers will become more selective in the risks they accept and smaller conveyancing firms that generate lower premiums could face a restricted choice and higher costs for professional indemnity cover.

Chris Jones, Director of legal and market services, at the IUA, commented: “Many solicitor firms are facing economic pressures and we have already seen an increase in requests for payment of premiums by instalments. “Insurers have shown their willingness to work with other professions that are struggling to mitigate the short-term economic effects of Covid-19, but the complete lack of any protection around payment of premium and excesses makes it far more difficult to do this for solicitors. “It is not proposed that there should be any change in the scope of insurance offered. Our objective is to better manage policies to ensure that solicitors pay for the cover that is being provided to them. This will benefit the market by providing long term confidence in the availability of cover and giving insurers more flexibility to develop bespoke arrangements for their clients.”

An SRA spokesman comments: “Everyone will be aware that we have recently undertaken a comprehensive, two-year period of consultation on insurance issues, including looking at a fundamental review of our minimum terms and conditions. “Late last year, our board decided that in the light of feedback from the profession and consumers, the risk to client protection meant there would be no changes to the cancellation of run-off cover due to the non-payment of premiums. “It will be some time before the implications of the Covid-19 pandemic are fully understood but we, like everyone else, are monitoring it closely. “We have been talking with the insurers and are working with them to mitigate the risk of non-payment of premiums while maintaining this important consumer protection. We will continue those discussions over the next few months.”

Simon Davis, Law Society president commenting on PII said ‘‘Firms should brace themselves for an average increase of 30%, but those with bad claims histories should expect far higher increases. Covid-19, the uncertainty of Brexit negotiations and the fact the market was hardening already in 2019 all combine to mean that October 2020 could be the most challenging period for solicitors since the insurance market opened up in 2000. Insurers are reluctant to take on new risks at the moment and many are not seeking new clients. Those firms they are prepared to work with may need to provide extra information such as details of as risk management, financial performance, furlough scheme use, continuity planning and evidence of ongoing profitability.’’

In response to the open letter from the IUA, Simon Davis said “The Law Society understands the concerns of insurers and is sympathetic towards their request but is mindful that the primary purpose of professional indemnity insurance is to protect solicitors’ clients and the wider public.  We agree with the IUA that non-payment of premiums or excesses by a minority of solicitors is a serious matter, and one that has serious implications for the profession as well as the insurers.  Insurers are compelled to pass those extra costs on to the rest of the profession, which means that well-managed firms end up paying not only for themselves, but also for the small minority of disorganised or insolvent firms.  If the problem is not addressed, it could drive insurers from the market – reducing capacity – making it harder to find cover and further increasing the cost.  We have offered to work with the SRA and the IUA to reach a mutually acceptable solution and have suggested that, as an interim measure, the SRA should be more willing to take regulatory action against solicitors who do not make the requisite payments.  These are difficult times facing the legal profession and the economy as a whole, so it is vital that we maintain a competitive market for PII. To help achieve this, it is vital that all our members pay for their premiums and excesses.”

One scheme that may help mitigate this issue is The Legal Eye Quality standard, which has developed out of the requirement for businesses to be able to satisfy potential customers, insurers and staff that the running of the business is taken seriously and they will have the highest standards in compliance. Legal Eye Quality Standard firms may benefit through controlling Professional Indemnity Insurance premiums by way of visibly evident, robust and documented risk management processes. Redbrick Solutions are delighted to have achieved the highly desirable Legal Eye Quality Standard following an intensive assessment process and have held it since 2014.

Furthermore, Redbrick’s conveyancing case management solution enables the law firm to demonstrate to the insurer that they run their matters in a low risk manner.  Complete audit trails provide a comprehensive record of all actions taken on the file, whilst the removal of repetitive data entry minimises the risk of errors in re-keying information.  Conflict checks, AML alerts, integrated SDLT submissions, secure document portal and prompts for checking monies on account all make matters less likely to result in a claim against the firm.  Redbrick’s reporting module will also provide the law firm with data required by the insurer, saving the law firm a significant amount of time and effort.