Preparing for Professional Indemnity renewal
After 18 years of the open market, bringing a fresh approach to an article about completing PII proposal forms is a tricky task! The principles that I’ve highlighted several times in the past few years still hold good, but I want to explore a couple of points in slightly more depth this year.
First, the basics…
Don’t put off returning the paperwork until the last month – you can lose the initiative by robbing yourself of the time to consider your options.
Control the marketing – you’ll be contacted by many brokers, but giving too many of them your submission can detract from the results. Most of them will have limited direct market access, and will be fishing the same ponds. Ask how many relationships the brokers have with participating insurers (and which ones) and establish how each intends to conduct the exercise. Will they broke your risk directly to insurers, or will they pass it along to other brokers who have the relationships?
Do your homework – what are the current hot topics from an insurer’s point of view? Do they affect you, and if so what have you done to mitigate your exposure to them? Can you give information in addition to the proposal form that would make your exposure more desirable to an insurer?
Take care with your submission – do the numbers all add up? If handwritten, is it legible? Does every relevant question have an answer? Ensure that you include any additional information that puts you in a better light, even if the form doesn’t ask for it – and check again that the numbers all add up!
Don’t leave funding to the last minute – Insurers run a unique six-year credit risk linked to the run-off requirements of the required wording, and you really don’t want to default into the Extended Indemnity Period because your chosen insurer won’t bind cover until they have the funds in their hands.
I also want to concentrate on two important aspects arising from the above.
First, the matter of latent claims or circumstances. In the lead up to renewal, it’s important to check that nobody in the firm is sitting on a potential claim, or circumstances that could give rise to a claim. A check amongst all fee earners is a must, preferably when completing the proposal form, and when renewal has been agreed and you’re being asked to complete the declaration that invariably comes with the acceptance paperwork, it might be advisable to re-confirm internally.
All the above should be second nature now, but you should consider extending this to check if there are unreported complaints as well, And double-check your complaints log and the action being taken to see if any complaint has turned (or has the strong potential to turn) into a possible claim. If the words “fault”, “blame”, “negligence” or similar appear in the correspondence, they should trigger a precautionary notification to your insurer.
Identifying when a complaint develops into a claim can avoid future problems. This can be very difficult in real time, but you can be sure it’s very easy in hindsight! My colleagues in the Solicitors’ PII Claims Team claims team regularly advise clients on this issue, and we always default on the side of caution. If a notification turns out to be nothing at all, it won’t affect your premium, but the reverse can’t be said.
The second issue I want to highlight is the inevitable proposal question that will say something like: “Are you planning any changes to the firm in the next 12 months”, commonly followed up with “Is there any other material information which may be relevant to this proposal?”
These are wide questions, which could encompass a planned change in regulatory status, change of staff numbers, additional type(s) or work, addition or disposal of office(s), merger/acquisition opportunities, succession plans – anything relating to the firm’s exposure to insured risk. Succession and merger/acquisition plans can be linked, either with a view to the proposing firm’s principals retiring, or to bring younger principals into the firm, or both. Try not to leave underwriters in the dark, as the worst will generally be inferred, leading to higher premiums than necessary.
You should have had the opportunity to discuss all this, and any other changes, with your broker in the course of the year, to avoid surprises for your insurer at renewal.
Several clients have told me that the main attraction of the 18-month insurance period option often offered is that they only have to complete two sets of proposal paperwork in a three-year period! That’s understandable, but it means that when you do get the chance to advertise your firm to underwriters (which is how you should see the renewal process) you should do so to your very best advantage.