Are you ready to break free from Sif?
22 May 2000
13 December 2013
23 June 2014
19 December 2013
25 November 2013
17 January 2014
As the abolition of Sif gets closer Trevor Moss asks whether the qualifying insurers provide a viable alternative.
With more of a whimper than a fanfare, the list of qualifying insurers was listed on the Law Society website last week. From 1 September, the Solicitor's Indemnity Fund (Sif) will cease to exist and solicitors' professional risk will be transferred to the insurance market.
Last year, the profession contributed in the region of £250m to Sif. It would be reasonable to assume that such a premium income should result in a scramble by insurers to take a piece of the action.
But last week's list shows only 10 insurers (counting two arms of the same operation as one) prepared to compete against Solicitors Professional Indemnity Limited (Spil), the new name for the Managing General Agency (MGA) owned by the Law Society and St Paul, the insurer chosen to run the MGA.
Commentators are surprised at the low turnout of insurers on the Law Society's provisional list, although more may apply for qualifying status between now and 31 August.
Many professional indemnity insurers have decided not to underwrite solicitors primary professional risk exposure, due to the wide scope of cover demanded under the Law Society's minimum insurance requirements.
Those who have subscribed to the schedule of qualifying insurers will also provide the security behind the Assigned Risks Pool (ARP), the safety net for "distressed" risks. This is another deterrent to insurers thinking of entering the panel.
Some would agree that a choice of 10 is better than no choice at all (which was the situation under the Sif model).
Firms in the five to 25 partner bracket will have the greatest number of options available to them. Insurers consider this sector to offer the best returns in terms of a premiums to claims ratio, based on statistics published by Sif over the past few years.
During the next two weeks, qualifying insurers will be rolling out their branded policy wordings. These will be based on the minimum requirements outlined under the Law Society's mandatory terms and conditions of cover. But insurers will endeavour to differentiate themselves by incorporating "add-ons", such as outside directorships cover, employment practices liability and cyber-liability extensions.
Many firms will make a decision on the placement of their broker and insurer based on two tests, namely competitiveness in terms of price, and the quality of advice.
Claims handling and risk management capabilities will be high on the list of priorities. The standards of knowledge and infrastructure of insurance advisers and qualifying insurers could potentially vary significantly in these areas.
Some firms will undoubtedly consider that the safest and most convenient route would be to simply insure through Spil. But whichever decision the firm makes, it must be viewed as a decision for change. The old MGA is a commercial insurance facility and not a revamped Sif.
The market offers choice, and firms should take advantage of the benefits that competition brings.
Use a broker who has access to all qualifying insurers (remembering that some of them are Lloyd's underwriters and only accessible by Lloyd's brokers).
Choose a broker with care - your professional indemnity insurance is your licence to practise.
Avoid saturating the market. Qualifying insurers will be quoting many thousands of risks in the coming weeks and will not look favourably on a firm whose submission is received from many different sources. Most insurers will only quote to one broker on a "first come, first served" one quote only, basis.
Present your submission in the way that best reflects the professionalism of your firm.
If you have a tarnished claims record, get outside help. You need to demonstrate to insurers that active measures are being taken to avoid problems that have occurred in the past.
Avoid the ARP. Not only will it cripple you with punitive premiums, but the impact on your firm's reputation could result in clients going elsewhere for their legal advice.
Some firms will undoubtedly fare worse under this new regime. But the majority will benefit from the releasing of the financial shackles of Sif and many are likely to see their professional indemnity costs reduce by 50 per cent or more.
With potential benefits of such magnitude, it is worth taking the time to prepare thoroughly and buy wisely.
Trevor Moss is a director of Nelson Hurst Professional Indemnity, a division of Alexander Forbes Risk Services, a Lloyd's broker specialising in professional risk solutions.
See next week's special report on insurance