Expert Comments On Contracting PII Market And Law Firm Implications
The second largest global insurance broker, Aon, announced their partial withdrawal from the Professional Indemnity Insurance (PII) market this summer leading many to speculate on the future of the insurance market for solicitors.
Aon’s Maven scheme, providing PII for smaller law firms with between one to three partners, will not renew policies when they end at the start of October.
Aon announced the departure of the Maven scheme from the PII sector just six weeks before many firms were due to renew their policy, sparking speculation that the market could be entering the first hardening market since the financial crisis in 2008.
Maven’s withdrawal from the market marks yet another disappointment for the sector and continues a trend of declining PII insurers but could be the largest supplier to SME firms to leave the sector.
In the past decade, PII providers XL insurance, Aspen, Brit and QIC Europe Ltd have all withdrawn because of difficult market conditions. This in addition to others who have withdrawn due to financial difficulties such as CBL Insurance Europe Ltd.
Libra’ a scheme for larger law firms withdrew from the market at the start of the 2018 renewal process, also due to unfavourable market conditions.
As the PII exodus continues, law firms and potentially thousands of lawyers will become anxious about what they can do following a stranding just six weeks prior to their renewal date.
With a lack of new entrants and the possibility of further reduced capacity, it is likely that existing insurers will increase premium rates further, creating a very uncomfortable environment for the legal sector.
James Brindley, account executive at TLO Risk Services has taken the time to offer his unique insight into the sector, looking at the current state of the PII market and what it could mean for the future?
What attributing factors are causing insurers to leave the PII sector?
The Lloyds review in 2018 has had a significant impact. Professional Indemnity was one of the three worst performing classes of insurance for Lloyds. Syndicates were forced to review their PII book and as a result, many have either withdrawn entirely from PII or reduced their PII exposure significantly. This has left a huge gap in the market and at present there are no new insurers looking to fill that gap!
What will a hardened PII market mean for law firms and solicitors?
Law firms will have less choice, particularly smaller law firms who practice in high risk areas such as conveyancing. We will also see less brokers fighting for business due to the limited number of insurers offering insurance to law firms.
How can law firms ensure they receive a favourable premium from PII insurers?
Firms need to prepare early for renewal, leaving it to the last two to three weeks of the policy renewal period will not do in a hardening market. Firms need to assess the work they take on more carefully and ensure their risk compliance and procedures are robust to help avoid potential claims. A firm’s claims experience is a significant factor to underwriters when the market hardens. Engage with your broker early, and if you feel the need to review your broker ensure you are dealing with PII specialist and they make it clear which insurers they can approach on your behalf.
What will prevent insurers from leaving the PII market?
Insurers will go through a process of reviewing their book of business which is happening now where they will decline to offer firms PII cover if they have historically poor PI records or where an area of work has caused losses. Underwriters will look to get their books in to profitability and that will prevent more insurers leaving the market. It can be argued that over recent years insurers have been chasing premium income rather than profitability, which has led to competitive but unsustainable premiums over those years.
How do you see the PII market responding in the next 12 months?
I envisage the market will continue to assess and review certain categories of professional business and firms will see increases in their premiums and some may be forced to move insurers, either due to significant rising costs or through an insurer changing their approach to certain classes of business.