How to secure the most competitive premiums for solicitor Professional Indemnity Insurance – 14th July 2010
The Editor of Today’s Conveyancer Chris Harris has significant experience in managing risk and compliance within conveyancing firms. Many partners are just so busy with their day to day activity that they fail to adequately manage risk within their businesses. Should you wish to contact Chris to see whether your practice would benefit from risk and compliance assessment (which you may wish to pass to your broker or potential insurer) then please contact him on 07983 485 490 or at [email protected]
How to Secure the Most Competitive Premiums
By John Wooldridge, Windsor Partners Limited.
Once again, the renewal of the Solicitors professional indemnity insurance policies on 1st October 2010 looks like being a far from straightforward affair!
Market capacity continues (like my hairline!) to recede and the well publicised administration of Quinn and the more recent announcement from Hiscox that they are withdrawing from the Solicitors Professional Indemnity market with immediate effect will obviously reduce capacity further. More Insurers may follow, or at least restrict their participation in the sector, if the minimum terms are not revised to give Insurers a sporting chance of avoiding the unsustainable losses being inflicted upon them as a result of their participation in the Assigned Risks Pool (ARP). By way of an example, the figures for the 2008 year ARP are as follows:
Premium due to Insurers: c. £5,500,000
Premium collected: c. £2,000,000
Paid claims to date: £3,500,000
Current best case scenario reserve figure: £35,000,000 including defence costs
Current worst case scenario reserve figure: £51,000,000 excluding defence costs
Whilst the 2009 ARP figures do not look as bad as 2008 year, albeit that the figures are very under developed from a claims point of view, Insurers still expect their losses to run into the tens of millions.
The main purpose of this article, apart from bringing you up to speed with market conditions, is to look at what we think may happen to the market this year and what steps law firms can take to ensure that their firm is presented to Insurers in the best possible light.
First, it is important to recognise that the insurance market divides the legal profession into three main groups being one to three partner firms (small firms) the four to ten partner firms (mid-tier) and all those with ten or more partners, regarded as large. There are obviously exceptions to this rule such as the ‘sole practitioner’ Personal Injury specialists who employ hundreds of staff and whose turnover runs into the millions and the ten partner firms with turnovers of less than £2m etc., but rightly or wrongly this is how the insurance market approach the legal profession.
Whilst none of the qualifying Insurers have yet revealed their premium rate for the forthcoming renewal, my gut feeling is that smaller firms can expect increases (or significant increases if previously insured with Quinn) and 4+ partner firms may not get reductions but premium increases tied to fee growth which basically means that if your fees are down 10% your premium will be the same as your 2009/10 figure and if they are up 10% your 2010/11 premium will be 10% higher. In general the mainstream Insurers seem to feel that they have rationalised their accounts sufficiently over the last year or so, meaning that they will be keen to keep the firms which they have. One or two such as QBE may be reviewing the minimum number of partners they will look at, but overall, the insurers that deal with the core of the profession will be looking to show their existing clients support.
The same insurers also have an appetite for some new business but only have limited budgets; it is therefore likely that this appetite will dull once they have seen firms fitting their profile probably by the end of July.
Last year the smaller firms were hit hardest by premium increases and, as I have predicted above, I fully expect that it will be the same this year with the 2,911 Quinn clients being particularly affected. I fear there maybe an element of retribution against the Quinn clientele from the market as many Insurers feel that law firms who were happy to allow something as important as their professional indemnity insurance to be placed with an Insurer with no recognised credit rating should not expect any favours from the conventional market. There may also be credibility issues for the brokers who supported and in some cases continue to support Insurers who fall below the Standard and Poors rating of A- which has for a long time been the accepted market minimum security requirement for medium to long tail business.
The four to ten partner firms fared better last year by comparison, as there are a greater number of Insurers keen to offer terms, thereby generating much needed competition for the better run firms which obviously has a positive impact on premium rates. The less attractive firms will probably find things more difficult than last year as Insurers look to steer clear of the firms that they perceive to be higher risk.
The highly prized ten plus partner firms will find things a lot easier than the smaller firms as they have a whole host of Insurers eager to pick up their business and competition in this field is expected to be fierce.
The feedback from Insurers thus far for the 2010 renewal season is that they will be far more selective than in previous years, paying particular attention to good risk management procedures, claims histories, work splits and practice profitability. So the emphasis more than ever is on you, in conjunction with your broker, to distinguish yourselves from the circa ten thousand other law firms renewing on the same day. What steps can you take to make sure you will stand out from the crowd?
Take the time to meet your Insurer.
– This year, more than ever, it has been absolutely imperative to have an ongoing dialogue with your Underwriter (who is, after all, the person responsible for deciding how much premium you pay!) to explain what steps you have taken to improve your practice, how you have coped with the economic downturn and why you are a better risk than the firm next door. These face to face meetings are a great opportunity to inform your Insurers of positive feedback from any file audits or SRA visits, procedural changes implemented to improve your business, investment in new software packages etc.
– Ask to meet alternative Insurers. It is certainly wise to have a second option especially when your incumbent Insurer may be the one who is looking to increase rates more than the market norm.
Make sure that your Proposal Form is completed to a high standard.
– Approximately 50% of proposal forms are incomplete when they are returned which creates a logistical nightmare for Brokers and Underwriters alike.
– Make sure you answer all questions fully. If the form does not give enough space to answer the question in the way that you would like then provide the full answer either in the covering letter or on a separate sheet.
– Make sure your claims records from previous Insurers is attached to your renewal submission and provide commentary on any outstanding claims that are reserved above your self insured excess.
– If there is an Insurer reserve which you think is unduly pessimistic then please provide commentary on what you consider to be a more realistic figure. Some Insurers have been accused in the past of posting unrealistically high reserves on spurious claims to frighten off competing Insurers. Client’s views on likely settlement figures are taken into account when Underwriters are trying to get a feel for the true historic claims position.
– Firms that are involved in the property sector should provide additional commentary on how work is sourced. For instance, appointments from repeat customers and referrals are quite rightly deemed to be lower risk than work arriving from unknown parties or property developers. Also details of the level at which the work is handled within the firms is valuable.
– Also provide details of any re-mortgage work as this attracts a significantly lower rate than full conveyancing work.
– Buy-to-let properties are causing Underwriters much more concern following a spate of recent losses in this field which may result in fewer Insurers willing to offer terms for firms that are heavily involved. Any additional information you can supply that would help Insurers understand the risk better would be beneficial.
– Insurers are expecting a glut of claims from the alleged under settlement of miners claims. Again any additional information relating to your involvement in this field would help.
– We also expect Underwriters to pay particular attention this year to the relationship that Personal Injury practices have with After The Event providers and Claim Management Companies.
– Don’t be afraid to ‘blow your own trumpet’ about anything you do, that distinguishes you from your competitors.
Submit your renewal application early.
– It is true to say that when there is excess Insurer capacity and the market is ‘soft’ it might be beneficial to leave negotiations to fairly late in the day as some Insurers might cut their rates in an attempt to secure a greater market share. The reverse is true when the market hardens as Insurers limited capacity is allocated on a ‘first come first served basis’.
– With our help, the vast majority of Windsor clients will complete their renewal applications by the end of July and will be in receipt of their renewal terms in early August. As Windsor Partners Limited have unrivalled access to all of the main Insurers , all of whom will start quoting on or around 1st July, so there is no excuse, providing the proposal form is submitted in good time, for any last minute panics!
– As previously mentioned there are limited budgets for new business and therefore as Insurers commit to new firms their appetite will dull and premium advantages lessen.
Select your Insurer carefully.
– It is not just law firms who are suffering in the current economic climate; Insurers are feeling the pinch too. Ask what security rating your Insurer has and steer clear of any market that does not have at least an ‘A’ rating or its equivalent from one of the three main rating agencies (S&P, A.M Best, Moody’s). Professional Indemnity is a mid to long tail class of insurance with many claims taking years to settle so the security of your Insurer is paramount.
Select your Broker Carefully.
– Select a broker who has direct access to the London market place. The vast majority of regional brokers have no option but to use specialist London market brokers, such as Windsor Partners Limited, as they do not have access to all the main players in the PI Insurance market or have to do so by post alone.
– Select no more than two brokers to canvass the market on your behalf as anything more than two is almost certain to be counterproductive.