The cost of professional indemnity insurance (PII) is one of the major overheads for new law firms starting out in business.
The SRA requires all firms starting a new practice to carry professional indemnity insurance, but the costs of this essential class of insurance vary greatly between insurers. The Solicitors Regulation Authority (SRA) dictates policy wording to insurers, but the market for professional indemnity for solicitors can be complex.
In order to make an informed decision about which product is right for your firm, it is beneficial to have some understanding of how the process works.
Starting a new Law Firm
New firms wishing to register with the SRA will have to submit a quotation or ‘offer of professional indemnity insurance’ from a professional indemnity insurer authorised by the SRA. As outlined in the SRA Indemnity Insurance Rules, the minimum terms and conditions must be followed. The following must be provided in order to obtain a quote; a fully completed proposal form, your business plan, forecasts for cash flow and the partners’ or directors’ CV’s
An underwriter can use this information to get a clear picture of how the business will operate, including its risk management processes and revenues.
Getting a Quote
Insurers dominate market distribution with 90% of law firms buying cover through brokers. In addition to lowering premiums, a good broker provides valuable advice and support, especially during the claims process. We are a specialist PII broker so for free advice or a quote please contact us on 0800 180 4203.
Depending on typical risk factors and market competition, PII insurance typically ranges from 1.5% to 5% of fee income. Rates will vary based on the work undertaken and the claim history however as new start-up firms have no legacy or history to insure, rates are usually discounted.
Additionally, bear in mind that different insurers will have different minimum premiums. Insurance companies start with a minimum premium to insure a risk, and premiums can vary significantly for solicitors.
By law, the SRA requires you to carry run-off insurance if you stop trading. For a period of six years, this will be calculated as a multiple of the annual premium, usually three times the annual premium.
Calculating the Premium
It is a complex process to determine the risk profile of a law firm or any professional indemnity risk. In order to provide a quotation that precisely reflects the risk they are pricing, underwriters must be highly skilled and require a significant amount of information. The following are taken into consideration when calculating premiums: the firm’s claims history, the types of work performed by the firm, the number of partners, directors, and employees and the annual revenue of the firm
A fully completed proposal form will be required by the underwriter for the assessment of risk. Additionally, they may spend some time looking at the website of the firm and may dig deeper into the firm’s background.
Make the right impression
The importance of presentation cannot be overstated. Underwriters are evaluating your firm’s professionalism and quality so if the information you provide is poorly presented, it may affect their judgement and their premium offer or they may refuse to quote at all.
In order to receive a quotation, you must complete a fairly lengthy proposal form, and new firms also need to submit a great deal of additional information. An underwriter will carefully consider all of this information. A proposal is a reflection of the quality of your business to the insurance market, so you should make sure that it looks professional. It will be used by underwriters to judge you, along with your website and financial information.
Ensure your insurer is aware of the money and time you spend on risk management and quality improvement. Adding a few notes on this subject could help prevent this from being overlooked or not reflected in your premium.
How we can help
Our team have a vast experience in the field of business insurance and risk assessment and by applying our in-depth knowledge of professional services, we are able to design innovative insurance programmes for each of our clients. For a general chat, some free advice, or for a competitive professional indemnity insurance quotation, please contact us on 0800 180 4203 or email info@legalexplus.com.