Despite the unprecedented difficulties over the last 18 months, smaller law firms appear to have survived the pandemic quite well so far, but there is a very real concern that increases in the cost of professional indemnity insurance (PII) may ultimately push them out of the market place.
Smaller firms have indicated a high confidence in the future for their businesses, whilst recognising significant threats such as the continuing demands of compliance and the need to attract and retain good lawyers.
However all firms have seen a rise in PII, mainly attributed to the increased risk during the pandemic and a less competitive market due to more insurers leaving the PII market in recent years. And whilst it is somewhat expected that PII costs do typically rise every year, recently small and SME firms have seen an average increase of around 30%.
The Law Society had warned the sector of expected increases of around 30% which have been realised. The legal profession is already operating in a hard market however the situation is compounded by a significant minority of firms making claims which exceed the premiums raised by insurers, a scenario which is not sustainable.
It is essential for firms, particularly those engaged in conveyancing work, to take steps to review their risk management practices. Residential conveyancing remains the highest area of claims for most PI insurers, areas of concern include ground rent clause disclosure and complications around multiple dwellings relief from SDLT and other aspects of SDLT reliefs. Some insurers have become concerned about the sudden increase in fims’ workload since the re-opening of the market post pandemic.
Remaining key to defending claims is effective communication with clients, good supervision of staff, ongoing training for staff and fee earners, particularly when working from home and this is what underwriters are looking for.
If you are seeking to renew, it may be helpful to be able to present a record of your experiences of working through the pandemic including details of how you’ve overcome the negative impacts to make you firm more operationally resilient. Being able to present a concise record evidencing the steps you have taken to manage risks could give you the edge upon renewal.
If your firm has had a significant uptick in the number of transactions of over 15%, the insurer needs to be notified as should significant changes such as new partners or new areas of work to ensure there are no surprises when it comes to renewal time.
We are specialist providers with extensive experience in arranging Insurance for firms of all sizes. With full access to participating insurers and flexible policies tailored to your needs, we have specialist knowledge to help you get the right cover and can offer risk management advice & support with year round risk management advice & support. Call us today on 0800 180 4203