Too early to think about PII renewals?
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This month’s technical corner article comes from Paul Saunders, Managing Director at Legal Eye
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Many firms with a 1 October 2020 renewal date were more anxious than they may have been in previous years about their ability to secure cover and to negotiate a competitive premium as they waited to see how Covid-19 would affect premiums.
Now we are in the run up to April and the pandemic has stepped up a gear in terms of infection rates, how will that impact both April and October renewals in 2021?
Looking back at the 2020 renewals, one of the most worrying things that we saw here at Legal Eye was insurers issuing a requirement for personal guarantees from the directors of a practice even though they were limited entities. Although (as far as we know) this was limited to two insurers in the last round of renewals – it is a concerning development and something to be aware of when you approach your next renewal date.
We saw several well-respected firms fail to obtain insurance and on the panel management side of our business we have 60 firms that have failed to produce a certificate of cover to date. It is a worrying trend that may become increasingly common leading to potential forces mergers or closure of firms.
We are having ongoing discussions with brokers and insurers as to what information we can provide to insurers on firms to reassure insurers that financial management is at the top of the list of firms and how successful firms are being in adapting and changing.
Certainly almost all insurers required greater information about financial planning in their questionnaires during the last round of renewals.
What’s the picture for the next PII renewal point?
What do we expect to see ahead? We anticipate that there will be more questions around the long-term planning for firms and the financial security of a firm. It is likely that insurers will ask to see a financial plan that illustrates how they have handled the pandemic period and how they have responded to the financial challenges presented.
The new things that we consider may appear will be around the future proofing of the firm. Insurers are showing concern that if a firm does not have a clear and strong plan then by renewing the cover for a firm they may be taking on the responsibility for the run-off cover for a poorly prepared firm. This is a level of satisfaction that insurers have previously not sought and the skill will be in finding ways to present this to give the appropriate level of reassurance.
Managing partners and risk professionals will be eager to understand how the coronavirus pandemic will influence insurers’ appetite for providing coverage for professional services firms. With headlines such as ‘60% of high street law firms face closure’ featuring in the national press; early indications are that insurers will approach renewals even more cautiously than under normal circumstances this time around.
We have already seen firms receive probing questionnaires issued by insurers which differ from the usual pro formas. Examples of additional information requested include greater detail on finances (and therefore on the financial security of the firm) and – perhaps unsurprisingly – queries around business continuity plans and preparedness for any future disruption to normal practice.
Trying to interpret the forms and to understand the underlying requirements is going to be a challenge. Legal Eye has undertaken an in depth analysis and produced a risk analysis tool to enable firms to provide a bespoke report on their firm’s approach to managing risk and financial management – including the key themes identified as central to insurers’ considerations this year.
This report provides a factual description of how your firm has tackled the unprecedented challenges presented this year so far; how ‘business as usual’ is being safeguarded as far as possible, and outlines a robust risk management approach covering adaptations which will need to be made to the running of the firm in the future in order to protect the business.
We believe that insurers will look favourably on these reports and hope that they will assist not only in achieving renewal but may also help in achieving a lower premium than for those firms without such a report.
We are living through an incredibly uncertain time. No one can predict with total certainty how insurers will behave and react at this time. What we can however say for certain is that early engagement with your broker and the fulsome provision of well thought-through and well-presented information will further your case and heighten your chances of achieving a positive outcome through this renewal period.
If your business can proactively provide advanced disclosure, not just of financial planning but also of potential claims or complaints, and the documented processes that you are changing in order to ensure those situations do not arise again, it will go a long way to reassure the insurer that your firm is run professionally and with foresight and in a way that reassures not only insurers but also your clients and suppliers that you are doing the best that you can in these current circumstances.
Neither should firms be concerned if the risk analysis doesn’t paint a 100% perfect picture. Insurers will appreciate the objectivity of the analysis and be impressed by the associated action plan for acting on the identified areas for improvement. It shows proactive management, planning and a practical viewpoint – all major pluses for insurers who are looking to establish the true position of each client.
From my view on the market we do not think that the position is all doom and gloom. Many firms have put into practice their business continuity planning and have changed and reflected the market place in their business planning. However, when it comes to completing insurance renewal forms, very often firms do not see the benefit in disclosing this planning and disclosing additional information surrounding the excellent processes that they have.
Essentially it is approached as a form filling exercise when in reality it should be far more than that. Continued communication with your broker is by far the best way to ensure that your insurers are fully aware of the circumstances of your firm which enables them to give a fully informed view on premiums.
Providing your insurer with responses to specific questions and report on both your financial and compliance well-being is one of the most practical and proactive steps that can be taken easily and in advance of the renewal period.
Bringing in an experienced and independent financial expert with a legal background is one way of providing insurers with evidence that you are carefully planning for the future and have a clear financial strategy for the stability of the firm.
Legal Eye financial expert Fran Gibbons offers a gap analysis covering your firm’s financial stability, strategy, the structure of your finance team and efficacy of policies and procedures around finances.
She is an extremely able and senior accountant who has been Financial Director of a top 75 UK law firm who brings over 30 years of experience as a senior leader in law firms to Legal Eye. During her career she has led and implemented financial transformation strategies whilst ensuring that strong governance is delivered through robust risk and compliance management.
She has held management responsibility for accounts and operations teams and has hands-on experience of devising and overseeing the implementation of financial strategies to ensure the long term stability, profitability and financial success of the firm.
Fran offers a gap analysis of your firm’s policies, processes and procedures as they relate to the Solicitors Accounts Rules (SAR) including the production of a written report summarising the strengths and weaknesses of the current arrangements and detailing recommended next steps and actions to put your firm in an even stronger position.
She provides training on SAR and on anti money laundering (AML) as well as other finance-related training which can be delivered virtually for your firm, face-to-face (subject to gov-ernment guidance) or online via Legal Eye’s Training Academy.
Fran is also developing a Standard Procedures Manual to provide a practical and compre-hensive roadmap for firms to follow when looking to double check whether the current oper-ating procedures are fit for purpose, setting up a new firm – or arm of a firm – or starting a new finance function from scratch.
Fran also offers bespoke consultancy for firms on particular issues where they need advice such as the structure and recruitment of finance personnel, financial strategies for the firm, raising finance, mergers or acquisitions, structure and governance, preparing your firm for sale, improving profitability, outsourcing elements of the finance function and the potential use of legal technology to improve the financial management of your firm.
Paul Saunders is the Managing Director at Legal Eye