Solicitor’s Professional Indemnity Insurance Market Update
I provided some information for previous issues of Today’s Conveyancer regarding the Solicitor’s Professional Indemnity Insurance market and I have been asked to provide an update. This is currently a highly newsworthy story, with plenty of angles.
– At the time of last update we had seen Quinn Insurance going into administration. As a result, 2,911 solicitor firms (nearly 30% of the overall market) will have to find new Insurers at 1 October 2010. Even though they had no recognisable security rating, Quinn did offer affordable insurance to a lot of the smaller practices and the worry is that the remaining insurers will cherry pick the best practices, leaving a lot of worry for the others.
– Following on from this, for the first time the market had been prepared to share figures coming out of the scheme of last resort, the Assigned Risks Pool (ARP) from the 2008/9 year of account, where there were 166 firms insured. Part of the rationale for this may have been to try and scare the Law Society and the SRA in to pushing forward with a fundamental overhaul of the ARP.
– The ARP figures have gone further outwards (unsurprisingly), but equally worrying the profile of claim notifications for the 2009/10 year of account is now showing a very similar profile at the end of June 2010, to the one which was in place at June 2009 for the 2008/9 year of account; which now has a claim incurred position roughly equivalent to Insurers paying out £25 in claims for each £1 collected in premiums — although this could deteriorate further.
– Changes have been made to the ARP for this year — the last update advised that there would be no entry to the ARP for new start-ups and that the maximum period that a firm could stay in the Pool would be reduced to 12 months from 24 months, and this has been introduced, however, there are no other changes this year.
– At the last update the withdrawal of Hiscox as a Qualifying Insurer had been announced and since then Catlin have also left this market.
– A number of Insurers are now quoting and the early signs show some marked increases in premium. Even firms with good records practicing in the less risky disciplines are seeing increases of 15% but many are seeing much more severe increases. Insurers are arguing, with some justification, that they are leaking so much money from the ARP a 16% rise to premiums is required simply to service their contributions.
– Insurers are asking if it can be right that reasonable practices have to support high risk failing firms which in any other walk of life would be closed down. Just ask how many firms have ever successfully made it out of the ARP and we can quickly conclude the whole process is flawed.
– The awaited announcement of any changes to Minimum Terms and Conditions came through in early July, when the SRA announced that from October 2010 professional indemnity insurers will no longer have to provide cover to solicitors for defence costs incurred in relation to disciplinary matters arising from claims. Often the existence of cover for defence costs incurred in relation to disciplinary matters is a solicitor’s only chance of defending proceedings.
– The removal of this cover represents a significant change to the Minimum Terms and Conditions and will be of great concern to solicitors. From insurers’ prospective, this alteration to the Minimum Terms and Conditions will be a welcome change in a market from which it has become increasingly difficult for insurers to make a return.
So what holds true:
– It is still somewhat surprising that an area which has had so much negative press attention still results in some solicitors’ practices paying so little attention to their proposal form. A good (and complete) submission with relevant supporting information is an absolute must.
– Get started now — engage your broker and find out from them who they are seeing and what alternatives there are out there.
– Make sure your broker can access all markets and has the Insurance market presence, to be able to properly represent you in front of the Insurers.
