Firms rebuff captive insurance funds

Contrary to predictions last autumn, law firm uptake of captive insurance funds has been minimal, despite huge rises in professional indemnity (PI) insurance in 2001 and 2002.
A study by Aon Professional Risks, which holds 25 per cent of the market for law firm PI insurance, found that while larger firms have investigated shifting to captives, there has been no significant uptake.
Last year, in the wake of the 11 September insurance crisis, premiums for compulsory £1m cover increased by 30 per cent and for top-up cover they rocketed by as much as 60 per cent. City firms, which often need nine-figure cover, considered establishing their own captive funds.
According to Aon’s executive director Elizabeth Mullins, there was significant initial interest from her clients among the UK’s top 75 law firms. However, just “a couple” went ahead with the plan.
Mullins said: “After last year’s significant increases, this year we’ve seen premiums begin to level out.” She said they looked set to increase by 5 per cent or less in 2003-04, adding that where firm turnover increased there would be a commensurate rise in insurance premiums.
Osborne Clarke looked at captives last year, but has not moved forward. Managing partner Simon Beswick said: “We think premiums may be stabilising – it’s made the issue less urgent.” He added that a captive was still under consideration.
Wragge & Co looked at captives and a law firm mutual scheme, but turned down both. Senior partner Quentin Poole said: “You can only self-insure to a degree; you still had to go into the market for the top levels of cover we need.” He added that, in his experience, premiums are actually falling and said it was more efficient to buy insurance.
Aon also indicated that it expects a more significant increase – 10-15 per cent – on the primary £1m layer. This is less than the 30 per cent hike last year, but is sure to put further pressure on small firms.