Easy as PII

The PI insurance market is in a transitional phase, with new entrants heralding better times for smaller practices and fewer firms ending up in the assigned risks pool. By Martin Hall

As this edition of The Lawyer goes to press, a significant number of law firms still need to agree professional indemnity insurance (PII) terms for the new period.
However, the Law Society has suggested that the gloom of recent years appears to be easing, and this view is supported by ­Solicitors Regulation Authority (SRA) data that shows that, despite more firms than ever finding themselves in the assigned risks pool (ARP) in 2010-11, the rate of entry is slowing (see chart).

The ARP has dominated the headlines this year, and rightly so. But the inevitable contraction of the pool following the SRA review will help to create a more favourable environment for insurers as the 2012-13 changes approach.

While the market is not softening just yet, a number of insurers are happier with their books of business and feel their rates more accurately reflect the risks they hold.
Another encouraging piece of news is that several insurers have come into the market recently, helping to balance those that walked away. Their arrival also helps to soften the blow of Quinn Insurance’s exit from the PII market in 2010. As a major underwriter of solicitors’ PII policies, Quinn’s exit forced almost 3,000 UK firms to look for new insurers.

Into the fray

New entrants include First Title, Apro ­Management and Enterprise Insurance Services. With more insurers entering than leaving, the market is beginning to show signs of greater capacity, which usually leads to a sharpening of the underwriting pencil and could see insurers competing on price to win business.

Another good sign is that these entrants are targeting smaller firms, traditionally seen as the underdogs in the legal PII market. Sole practitioners and firms with only a few partners have historically been treated badly by the market, but this short-sighted approach appears to be coming to an end.

Smaller practices can be more ­nimble than big ones with multiple offices; the partners are able to be more in touch with what is going on within the firm and, if required, can improve their systems more quickly and ­effectively. Sole practitioners and ­partners in smaller firms often take more responsibility for practice ­management, something that is increasingly ­attractive to insurers with an appetite in this market.

That said, insurers are still imposing tight deadlines for the acceptance of quotations. There are reports that some solicitors have been given as little as 24 hours to consider quotes, even for renewals. The Law Society believes this is against the FSA’s Treating Customers Fairly provisions, and has told all brokers and insurers that it will be ­monitoring the issue for the remainder of the renewal period.

Furthermore, before cover can be ­confirmed, most insurers are also insisting that law firms have either cleared funds in their bank accounts or approved instalment applications in their possession. It is vital, therefore, that firms consider how and when they will pay their premiums before going to market.

The trend is optimistic, however. By the time we get to the 2012-13 renewal season the ARP will have been reduced, the claims picture will have crystallised, the global financial picture should be clearer and ­alternative business structures will have been with us for almost a year – although their effect on the market remains unclear.

To summarise, this year’s legal PII ­renewal period represents neither radical change nor stale gloom; we seem to be in a transition phase whereby insurers are keen to pick up business but remain careful about managing their own risks. The ARP is changing, insurers are less entrenched about their opinion of the legal market, there have been no major insurer departures this year and new insurers are coming in, with a halo effect leading to a change in the attitudes of some existing insurers.

If your firm finds itself without PII cover for 2011-12, it is not too late to source a ­quotation. You should contact a ­broker with access to the wider market – which should enable you to obtain a quotation, even if there are no guarantees just yet.

Number of firms in ARP

Martin Hall is a senior account executive at Giles Insurance Brokers