Professional indemnity premiums set to rocket

Law firms should prepare themselves for a whopping rise in professional indemnity (PI) insurance premiums

Insurance brokers Alexander Forbes Professions has gone on the offensive, alerting solicitors to a potential 30 to 40 per cent increase in premiums.
Alexander Forbes director Trevor Moss observed two key factors behind the predicted rises. Reinsurance capacity has been diminished as losses are absorbed and passed on within the market.
The PI market, too, has contracted, with insurers such as Cox and AXA dropping out but not being replaced by new participants.
Moss said: “Losses resulting from 11 September, especially liability and property, mean that the reinsurers are demanding much more stringent terms and conditions from the insurers themselves, which then impacts on how much risk an insurer will be willing to cover.”
For many law firms, PI insurance is already the third biggest expense behind salaries and rent, and Moss predicts that firms with poor claims records will be hit by up to 40 per cent.
David Coughlan, head of insurance provider Zurich Professional, takes a less dramatic view. “Our perspective is that rates will increase as they always do when there is an unstable economic outlook and a higher probability of claims,” he said. “We are still assessing our ratings for the current renewal season and have not yet fixed rates.”
Jonathan Davies, product manager at The St Paul, said: “One would have to go back to 1987 to find a time when the overall cost of claims was as low as the premium currently being paid. It therefore seems likely that some insurers' prices will prove to be unsustainable and that their customers could face sharp rises this year.”