Ask The Expert: PII Preparedness In The Time Of Covid-19
Despite some firms struggling to renew their PII in March, experts are assuring the sector that there are deals to be done, but firms must prepare.
The spread of Covid-19 in the UK coincided with many law firms looking to renew their PII insurance with some claiming premiums have risen exponentially.
At a time when law firms are already feeling financial pains as social distancing advice restricts the successful completion of many processes requiring legal support, some law firms have found it difficult to find an insurer offering them any PII cover with others being quoted premiums almost 50 per cent higher than the year previous, even if they have not made claims on their policy.
With more firms struggling to renew and falling into the 90-day Extended Indemnity Period, the Solicitors Regulation Authority (SRA) has warned firms that insurance rules will not be relaxed and PII for the year ahead will need to be secured before any extension lapses.
Today’s Conveyancer was interested to understand whether firms are caught between a proverbial rock and hard place and what options, if any, are available to them to ensure they remain compliant.
Jake Fox, managing director of J.M. Glendenning Professional Risks, has offered his key insights into the current situation and the plethora of steps firms can take to ensure they are able to succeed in renewing PII.
The overwhelming sentiment is that, despite difficult market conditions, there are still enough providers available and still deals to be done.
Adopting A Realistic Mindset
The legal sector had already accepted a hardening of the professional indemnity insurance sector before April 1.
Proactive firms would have already planned for indemnity cover to increase in light of more difficult market conditions and good brokers should be managing their clients’ expectations.
Market Was Already Hardening
Mr Fox believes that brokers and firms should have already been expecting a rate increase between at least 10 per cent and 20 per cent on their premium for the compulsory layer of insurance.
“There was a hardening market, but there was not necessarily a lack of supply in the run up to April 1. Whilst one or two insurers may have left the market, at least of those one didn’t provide conveyancing cover anyway.
“The most significant issues we have found were with one insurer Omnnyleaving the market some time ago. Firms coming out of 18-month PII offers with Omnny were not being offered renewal terms by them. While virtually all of these firms were being offered terms with other providers, they were finding that the premiums were significantly uplifted, and certainly above the 10-20% rate increases seen from insurers that are still in the market
“This may have more to do with a levelling out of premium levels between insurers, rather than anything else, but it comes back to managing expectation levels.
“Getting a sense early from a well educated broker of what good looks like is vital. We did see firms being offered terms above the 20 per cent increase, but because they have been managed through the process and understood what a sensible outcome in the market looked like they had budgeted accordingly and they then understand that what they have been offered is acceptable.
“Firms that were prepared early and were well informed, in my experience, received cover on relatively acceptable terms. I am not saying that the market is straightforward and it may be that some firms are not getting cover, but there are still insurers out there willing to write business, albeit at increased rates.”
PII and Coronavirus
Many of us are now living a new-normal where we adapt to a life with new vocabulary like ‘furloughed’ and ’social distancing’.
Whilst remote working has grown over the past decade, our homes are now our places of work for at least another three weeks.
What does this mean for PII renewals and will Covid-19 alter the way insurers operate moving forward?
Mr Fox added:
“We are not seeing any insurer turning around and saying we are closed for business because of coronavirus.
“Insurers are still open for business. However, with more people working remotely, it might take slightly longer to process applications and firms may experience delays, but there is no evidence that Covid-19 is having an additional impact on the hardening of rates.
“Most insurers are carrying on with the same strategy they adopted in the opening quarter of the year, which admittedly does mean increased premiums.
“What remains to be seen is the impact the virus will have on strategies as we move towards an October renewal.
“If we start to see firms that have challenges around their income, it will be interesting to see how insurers deal with those.
“Whilst most insurers in their business plan will want to achieve that 10-20 per cent rate increase, the last thing any insurer will want to do is to drive their clients into run-off by offering premiums that are unsustainable which could make them insolvent, or offer them a premium which encourages firms to make reckless choices from a risk perspective.
“Insurers may well need to respond to this inevitable drop in income.”
It is too early to tell, but this could mean that negotiations for October renewals take the current financial challenges into account and insurers may offer more favourable rates to ensure firms are still able to operate safely and sustainably. For this we will have to wait and see.
Communication is Key
All firms in the current climate need to communicate with their insurers over the steps they have taken to weather the storm at present.
Mr Fox said:
“It is really important that any firm who has had to begin working in a different way due to the current government restraints, whether that be through furloughing, making cuts or setting up remote working practices should be engaging with their brokers and their insurers to inform them of the changes they have already made. As policyholders we are all bound by the Insurance Act 2015 which makes it incumbent upon us all to disclose anything considered material to our insurers.
“Most insurers will note changes as information at the moment, but this is an important point to make that any prudent policy holder is notifying their insurer of any key material changes to their working practices.
“This would include furloughing staff, remote working procedures, explaining how the firm is engaging with their practice management system, explaining how audits and supervision are being conducted and to make sure your insurer knows how the firm is delivering services and remaining compliant in these difficult circumstances.
Firms In Extended Indemnity Periods
Firms concerned about gaining cover need to have confidence that there are options available. However, if firms find themselves in the Extended Indemnity Period, the advice from Mr Fox is as follows:
“I don’t think there is a single broker who can claim to have full market access because there are a number of of exclusive deals.Any firm struggling to find cover needs to speak to their broker and ask for a definitive list of insurers they have approached.
“It is also worth asking them if they are aware of any insurers that would write business for their firm that they have not been able to approach.
Alternatively, engage with a truly specialist broker who understands the market and is able to offer an impartial view of which insurers are available for their firm.
“Firms also need to understand the responses of the firms to have declined them cover. An initial refusal does not necessarily mean the insurer has no appetite for covering the firm. Try to establish via your broker the specific reason for any declinatures and then ask your broker to re-approach insurers if you feel you ahve a story to tell. Also as your renewal date approaches, or even if it has passed, don’t ignore your current insurer. You may find they are still willing to help once you enter the Extended Indemnity Period.
Whilst some firms may have struggled in March, the sentiment is clear – there are still deals to be done and communication with brokers and insurers could ensure that cover is achieved at a sensible premium.