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Solicitors’ professional indemnity insurance rates are set to rocket following the withdrawal of underwriter Berliner from the market, leading insurance brokers have warned.
The exit of the insurer was labelled the “biggest hand grenade into bottom end of the market for many years” by one broker, leaving more than 1,000 firms with just weeks to find cover in the open market.
The insurer was lined up to absorb the professional indemnity insurance (PII) book previously carried by Latvian underwriter Balva, which was on the verge of being closed down in June (18 June 2013).
Balva had more than 1,300 firms on its books, the majority of which opted to join Berliner ahead of the 1 October renewal deadline.
Berliner managing agent Apro wrote to firms that had already placed cover with Berliner yesterday warning that it was uncertain whether it would remain in the market. It is understood that this followed a warning from the German regulatory authorities that the underwriter had insufficient capital.
According to the Law Society head of regulation Elliot Vigar, the FCA had also raised concerns about the business.
London broker Bar Professions is understood to have arranged much of the cover placed with Berliner. When contacted for comment by The Lawyer this morning the broker refused, replying: “We’re fine, thank you.”
Legal Risk partner Frank Maher said it was well known in the PII market that Berliner had just £6m in capital when arranging to take over the Balva book. With the German insurer now withdrawing from the market Balva will continue to cover those 1,300 firms, which have until 1 October to find alternative insurance.
It is believed that as well as the 1,300 Balva firms, Berliner has been accepting new insureds from the market in recent months. One broker estimated that as much as £24m worth of cover has been placed with the insurer. Others put the figure at £20m, the majority of which were five partner firms or less.
The withdrawal of the insurer will no doubt stoke fresh rows about the presence of unrated capacity in the market. The Law Society has long warned about the risks associated with unrated insurers participating in the sector and warned against the use of Berliner.
Vigar said it was a “desperately difficult situation” for all firms affected, adding: “There is no doubt something needs to be done.”
Jardine Lloyd Thompson partner Mike Perry said rates would harden for those firms affected only if they had underpaid premiums in the past. “Most of the firms with Balva will be able to get commercially realistic and reasonable cover,” he said.
The SRA said it would be writing to all firms affected reminding them of the obligation to get cover in the live market before 1 October.
For more on how the insurance renewal season is shaping up read our special report: Toughing it out