In the UK, lawyers and law firms incur major overheads due to professional indemnity insurance (PII). Although we have only just entered 2022, the April 2022 solicitor’s PII renewal season is rapidly approaching. It is more important to note that insurance companies enter and exit the market at an alarming rate.
Therefore, it is now the right time to begin your search for the best providers, PII premiums, and payment solutions that can protect your practices property and assets in the event of failure. As a result of COVID-19 variants making headlines and disrupting business, solicitors may face an increased number of professional negligence claims.
Market Overview
Every year, the market for solicitors’ professional indemnity insurance becomes more volatile. A large part of the problem can be traced to the minimum terms required of insurers by the SRA, which has caused an unprecedented level of resentment. Because of this, many traditional PI insurers have stopped insuring solicitors.
There are fewer players in the market, so the level of competition has drastically changed, and insurance prices have been on the rise for years. More than 11,000 law firms in England and Wales generate over £250 million in premiums annually from the PII market.
PII premiums rise sharply
With annual premiums for solicitors firms in the UK rising by over 27% on average, there has been a significant decline in the number of insurers offering coverage. Following the reduction in primary limits to £2 million in 2021, this trend is likely to continue for the April 2022 renewal season.
Personal guarantees demanded from SME firms
It’s not just rising PII premiums that present SME law firms with significant challenges. The market is also seeing an increase in the request for personal guarantees from certain insurers, putting solicitors at a higher risk than in the past. This is essentially a legal document that guarantees a director of a law firm will personally repay any debt the firm owes, even if they are forced to use their own home or other assets to do so.
Popularity of personal guarantee insurance
A new solution has emerged specifically to help protect law firms in the event of a loss of collateral following the growing demand for personal guarantees by insurers. Providing the coverage required to repay debt when lawyers do not have the available cash resources, Personal Guarantee Insurance (PGI) is an annual policy that lenders are offering to solicitors and SMEs.
Increasingly, solicitors are preparing for the likelihood of personal guarantees becoming a mandatory requirement to balance the risks of both parties. Therefore, firms looking for coverage should ask their insurance broker if they will be required to pay a PGI, as well as run-off premiums to fully understand what’s at stake in case of financial difficulty.
Requirements for Cyber Insurance
Additionally, conveyancers may have to purchase stand-alone cyber insurance as the SRA has clarified that the protection afforded by PII for losses incurred due to cyber security threats will only cover clients and third-party applications. A mandatory cyber insurance policy won’t affect minimum terms, however.
In conclusion
Professional indemnity insurance is most certainly undergoing huge change. The fact remains that PII remains a core policy for law firms seeking to protect their financial assets. Firms need to sit down and assess their risks in preparation for April 2022, looking for the best coverage available in the marketplace.
As the winner of Best Professional Indemnity Insurance Broker two years running, and Professional Indemnity Brokers of the Year 2019 we can help to arrange cover for your firm. We also provide risk management support to give you the assurance you need throughout the year.
Legal Ex Plus was established to provide professionals with tailored insurance products that suit their specific requirements. By drawing on our vast experience and applying our in-depth knowledge of professional services, we are able to design innovative insurance programmes for each of our clients. Contact our expert team on 08001804203 for a free no obligation quote.