Chancery Lane responds to PII concerns – statement from the chief executive
The Law Society has moved to address growing disquiet among practising solicitors about the problems they have encountered renewing their professional indemnity insurance.
Chancery Lane announced last month that it had written to the Association of British Insurers and individual insurers asking them for an ‘urgent response’ to its concerns over ‘hugely inflated’ premiums. It has also been running a PII renewal helpline, which has taken over 1,000 calls.
Commenting on this site, however, some solicitors have said the Law Society should be doing more to fight their corner. Firms trying to meet the 1 October deadline have also complained of long delays between requesting and receiving quotes from insurers, and minuscule timeframes within which to consider and accept quotes – with some insurers demanding responses in just 24 hours. Some firms have had to shut because they cannot afford the higher premiums.
In a detailed statement to the Gazette on Wednesday, Society chief executive Des Hudson said he wanted to ‘set the record straight’. Hudson said: ‘I wanted to take the opportunity to respond on behalf of the Law Society to some of the comments that have been made in response to the recent article in the Gazette on PII and to clarify our position. I wanted to do so to rebut some of the more fanciful criticisms made of the Law Society, to set the record straight, but also because I and everyone else at the Society recognises the importance of this matter to so many of our members.
‘We are very much aware of the problems faced by some practitioners, particularly sole practitioners and small firms in obtaining PII this year, either for reasons of cost or through not having received a quote at all. It is clear though, that this is not a problem effecting all sole practitioners or small firms, many of whom have reported that they have obtained cover in good time at a satisfactory if increased prices. The Law Society is concerned that no viable firm should go out of business as a result of a failure to obtain PII cover.
‘To provide some background, we made the assumption that this renewal period would likely be as tough if not more so than last year, and so we have been engaged in discussions with qualifying insurers, brokers and their trade bodies, the ABI and BIBA since the start of the year. We have also published advice and guidance, ran national seminars and webinars, and set up a dedicated helpline to assist solicitors that has fielded over 1,000 calls since its inception in the run-up to the renewals period.
‘However, we cannot dictate to the market - a market that the profession voted to enter some nine years ago and which has seen a marked reduction in the total premium pool (the total of premiums paid by the profession) since the demise of SIF. In 2008, these premiums amounted to £226m; in 2000, the final year of SIF, the corresponding figure was £255m. The Law Society has no power to require qualifying insurers to quote or how much to charge - they are private commercial concerns. This is the essence of a market. The profession benefited whilst the market was "soft" and insurers sought business. It follows that when the market hardens and insurers become more risk averse, that premiums would rise and that the risk profiles and indeed risk management of firms would come under greater scrutiny. It should also come as little surprise and indeed has been the subject of much publicity this year as to where insurers would identity the greatest risks to lay.
‘The Law Society is charged with "letting this happen" and being asleep on the job. Nothing is further from the truth.
‘We have no power to amend the rules around the single renewal date, the minimum terms or the ARP - that is for the SRA alone, as the ABI and others are well aware. It is wholly unjustified to suggest that TLS has "let this happen" - we had no power to stop it.
‘Their have been many calls for an extension of the deadline from 1 October. Again, this is not within our gift. Nor indeed is it in the gift of the SRA to change. The date is set out as mandatory in the Indemnity Insurance Rules and is not subject to discretion.
‘On the issue of more time, I should point out that a protective application (to avoid defaulting into the ARP with a 20% premium penalty) to the ARP allows, at the discretion of a qualifying insurer for cover to be backdated 60 days to 1 Oct with no financial penalty. We therefore issued detailed guidance to the profession about that on 25 September. Further details are available on our website.
‘Contrary to some views expressed here, we are not "uncaring" nor have we just "woken up" - there is however a manifest difference between awareness of a problem and the capacity to change markets and market reality at will.
‘In anticipation of a hard market, earlier this year, we sought to negotiate a tripartite agreement between TLS the ABI and BIBA to agree a code of conduct and mutually acceptable and widely applicable standard letters of retainer, guaranteeing minimum standards of service and requiring responses, updates and quote / no quote decisions within set time periods. This we felt would hold all parties, including solicitors, to account and allow for timely business decisions to be made. These proposals were rejected by the insurance industry in this regard who prefer, it seems, on the one hand to rail against the current system but on the other hand seek, in the view of some commentators, to manipulate it and a hardening market for their own benefit. This response from the ABI and BIBA was particularly disappointing. Indeed allegations we have received from our members suggest that some qualifying insurers, who have (in the face of their previous endorsement of a "go to market early policy") left proposals unanswered until the very last minute if at all, have given firms as little as hours to take or leave a quote and have then ramped up premiums dramatically from last year with no warning and little apparent justification. In combination this amounts to the proverbial "gun to the head".
‘We are aware that the ABI in particular is lobbying for change in the way that PII is handled. The Law Society has sympathy with some if not all of their concerns. Indeed, from our own independent analysis and with due consideration of the implications for the profession, the SRA and the insurance industry we take the considered view that in principle, the single renewal date could be removed in place of a variable system. The independent report by consultant actuaries Lane Clark and Peacock LLP can be found here. Proposals in this regard go before our Regulatory Affairs Board shortly
‘We have been and continue to be prepared to engage with all players in the insurance market to design a system that benefits all parties moving forwards. However, we cannot countenance market practices that hold parts of the profession to ransom. The Law Society will do everything in its power to address the problems emanating from this renewal and will seek to influence those who can effect change for the benefit of the profession.’
Comments
PII
Pretty farcical really that this statement comes out on the very last day of the renewal season.
Instead of being obesessed with trivia and window-dressing nonsense (Pro bono awards, the Kazakhstan nonsense etc.) the Law Soc should have been engaged on a vigorous lobbying programme to get the SRA to see the reality of the situation and introduce emergency rules to extend the season.
What has the Law Soc been doing over the last few years in helping to clamp down on the conveyancing bucket shops and cowboys that have now caused such carnage?
Another large source of claims have been the Personal Injury "factory" firms. Yet who has allowed these factories to grow over the last 10 years - yes, the Law Soc, by turning a blind eye to those that broke the rules and paid for referrals.
PII renewal
I would like to add my comment to the discontent in regards to this year renewal of Professional indeminty.
I feel that this has been very discriminative in the sense that most firms that seem not to get the renewal is Ethnic firms who thrive within ethnic community and are good a excellent job. One must assess whole of the market given that not all have complaint and all still wondering what will happen on 1st October and what future holds for them and their clients and community.
It seems that the Law Society has no heart apart from receiving fees and being very protective of their seats rather doing something or refering insurance companies to Office of Fair Trading.
Thus markets may have harden, it does not mean that it should be difficult for firms to obtain PI renewal given that they applied almost three months ago.
The system is unjust and unfair.
One must think do we really want to continue given that we have worked six years to qualify and then end up be left penniless.
It's time the Law Society woke up rather than receiving luxury dinners and meetings and time to do something otherwise its the ethnic firms that suffer and whole of the profession.
in the last comments. i must
in the last comments.
i must be said that the not all firms have good field day this year and all firms are accepting offer at higher rate rather than to hold back.
it is time law society did something rather than just PR work.
it is time the proffession got a petition to loage to the Law Socety and ask the president to set down due to this issue which is effecting many within the market.
Response To "PII renewal"
I am so sorry (whoever you are), but as an ethnic minority solicitor myself, I was embarrassed to read your comments (assuming you are a solicitor, and not a non qualified member of staff in an ethnic minority firm). Your comments made me feel that if you could not be bothered to express your views clearly whilst paying attention to grammar and spellings, you probably serviced your clients in a similar shoddy manner.
If so, one would assume that mistakes (of the legal type) would also have been made in your firm, making your firm risky to insure. The one thing a solicitor cannot compromise on, is attention to detail, and you did not evidence that this was important to you in the comments you posted. Might any PII decision that you/your firm received be justified?
The tidying up of the main
The tidying up of the main piece (don't know how you did it), presents a much better picture. We are, each of us, ambassadors to ethnic professionals, and cannot afford to 'let the side down'. Thank you for making the effort.
Setting The Record Straight?!
Des Hudson's piece (above) has convinced me that my decision to leave the profession was right - if what he has said above is the best that the CEO of TLS can produce. Mr Hudson; it was too little, too late, and frankly, irrelevant and pathetic in that you have failed to see the reasons behind the criticisms leveled at the TLS. It is true that TLS cannot force the insurers/SRA to do certain things, but if it was an effective representative body, it would be looking to use its clout to "make things happen". It is clear that TLS does not see itself in such a protective role.
On another point, it would be good to know what enquiries TLS is making into whether the underwriting criteria of the insurance 'cartel' has had a disproportionate negative effect on ethnic minority firms/solicitors such as to constitute indirect racial discrimination (for this to happen, there need be no intention to discriminate; the effect of a policy/criteria just needs to disproportionately affect one racial group more than another).
PII
I would just comment that it is not just ethnic minority firms that have been affected, it is also small firms with 4 or less partners.
To hear the comment from Brokers "you have a good claims record" should give comfort, not so, it matters little if you have a good claims record it seems to do with size.
My firm has secured insurance in the market. The cost has increased by over 50% on last years premium (last years increased by over 50% also). The first quote we received was over 3 times the previous years premium, but the insurer after some consideration reduced the premium to just a 50% increase.
This cannot be right, one person who is employed by one of the large insurance companies told me that the insurance companies are loading the premiums because of the losses they have made as a result of low interest received on their investments.
The Law Society in Ireland have reduced the limit of insurance cover required by solicitors. the premiums are increasing over there too, on an internet forum a solicitor quoted their premium had increased three fold to £10,000 !!
TLS as our representatives should be fighting our corner otherwise the subscribtions they receive from lowly solicitors will not be forthcoming following a mass closure of firms.
PII renewal
PI renewals are not seen as a problem for the insurance industry.
The Insurers are delighted with the outcome of this PI season, one stated that they had acheived their objectives"we have reduced the number of policy holders by 50% and doubled our premium income"
When will the Law Society and the SRA realise that they are being outsmarted by an industry who are very clever in playing "the game".
New base for premiums going forward
The insurers are licking their lips. They have taken the opportunity to raise substantially the base level for all of us for our insurance going forward. We will never see the lower rates again.
I have mused for years at how my (very low - admittedly) insurance premium goes up by exactly 5% every year, whatever the market prognosis. This year, with no claims (ever), no need for a client account and exactly the same turnover as last year (i.e., my competition law-only practice has not suffered in the downturn), my premium shot up 65%! I was told by my broker that, as a sole practitioner, I should just pay and be thankful to be getting cover at all.
The Law Society saw this coming and did nothing constructive. If it does not think it can influence major factors affecting the profesion like this then it should close up shop - we don't need it and we can put the TLS practising certificate contribution towards our PII cover. Hear hear to the comments re expenses-paid "trade delations" to weird and wonderful places. Support us at home please.
PS Re the early posts: Ethnic minority or no, there is no excuse whatsoever for poor grammar and inarticulate argument from the legal profession. I am shocked to think anyone writing like that could have qualified as an English solicitor.
PII renewal
What Viv Williams says makes a lot of sense. Having achieved their objectives this year, might there be a softening in the market next year? Alternatively, does the industry have another 'game' to play?
PII Open Season
We are Insurance Managers (not insurance brokers) and this time of year bring whatever technical expertise and market knowledge we might have to securing decent PI renewal terms for our few solicitor clients. Despite submitting proposal forms, risk management audits and claims histories to brokers before the end of August, it was only yesterday that we were able to finalise matters.
Our position is somewhat unique in that we are trying to buy insurance rather than sell it but, speaking with more than 35 years experience of the insurance market, there is a very simple answer to this year's awful experiences - get rid of the common renewal date.
The insurance market is generally competitive - why? 1) The sellers don't know what their competitors are doing and 2) whether they will be able to reach their new business targets. This means the buyer holds most of the cards. Restrict the market - to one or two viable alternatives for sole practitioners - and provide a system where they can cherry pick from what's on offer immediately changes the game.
Other observations - given the premiums and commissions on offer, how serious are the ABI and BIBA to change a system which, obviously, favours their members? The Law Society is right in that they can't influence a free market place but are they prepared to, at least, agree some ground rules for next time round? Am I the only one to find AON's approach a little unhealthy?
It's not often I feel sorry for the legal profession, but this time round you have my sympathies. However, you'll only have yourselves to blame if you allow the situation to remain the same next year.
PII Renewal
Well said Viv Williams!!
Que faire - ils ont les cannons
According to Carlyle the only time that Brandenburg had a weak Elector before Frederick was sadly in the early part of the 17th Century during the 30yrs War. While Tilly and Wallenstein's armies were raping and ravaging his lands the Elector sat in his court saying 'Que Faire? Ils ont les Cannons' (What to do? They have the Guns). Luckily his son (The Great Elector) inherited Brandenburg half way through the war and got hold of some guns, putting them to excellent use.
Mr Hudson has said 'Que faire' in as many terms. A better timetable might have been:
Jan 2009 - A big problem is arising. Meeting called with Insurers and SRA and Justice Ministry and CML- Jack Straw notified -send representative if not come yourself. The profession is about to implode or explode according to your point of view. The problems are a likely hike in Insurance premiums making many solicitors unviable but underlying it is that there are far too many Solicitors chasing far too uncertain fees.
As far as the Insurers are concerned they would be asked for one year only to keep increases for small firms with a good record to more than 15% to allow time for reform.
Solicitors to be divided between a senior group comprising those in firms of more than 20 who will be required to support the other part of the profession again for a short period.
The other solicitors are told that to be viable they must demonstrate a turnover or profit level at a set point. Otherwise they must form Partnerships of 5 or more (no sleeping partners) and again show that this firm will be viable - turnover and profit.
Those who cannot manage must get out of the profession. The senior firms will have to contribute to the Compensation Fund which will replace the ARP for burnt out firms.
Mortgagees to agree that they will not pursue cases against Solicitors for frauds where the Solicitor has also been duped even if he has not been as alert as he should have been.
Nobody would be very happy with this but it would be better than what is now faced. Look at the record of unpaid ARP premiums - the number of deadbeat solicitors who do not pay their debts is staggering. What is it going to look like this year? What has happened to our once proud and autere profession?
If any of the above will not pay ball then the threat should be to wind up the profession
re : " The other solicitors
re : " The other solicitors are told that to be viable they must demonstrate a turnover or profit level at a set point. Otherwise they must form Partnerships of 5 or more (no sleeping partners) and again show that this firm will be viable - turnover and profit."
Is a low turnover/profit generating firm an insurance risk? What if the firm never holds client funds?
Your comments put the insurers in the position of the tail that wagged the dog. A low t/o in insurance terms is tantamount to a lower risk; and the viability of a firm is irrelevant if no client funds are held.
By all means, as a profession, if undesirable firms are operating, they should be closed down, but if a firm has a low t/o and poses little risk (profile and claims history), it should not be refused PII because a greedy insurance company knows it won't be able to afford to pay the baseless 'finger in the wind' premium it wants to pluck out of the air and impose on the firm. I thought the SRA and not the insurers decided which firms practiced or not (oops, I should qualify that by saying the SRA is supposed to decide...).
Some understandable misconceptions
Unfortunately what Viv Williams has written above is far from the case. Insurers are not happy today. They are in business to insure, not to avoid insuring. Sadly, the current conditions give our members little choice but either try to price for the unknown risks associated with certain types of firms or not offer terms at all.
If 500 firms are going into the ARP that's around 470 more than two years ago, when insurers were able to offer terms to more firms. So what has changed? Insurers haven't suddenly become fed up of insuring, they've had to be more cautious.
There have been three new entrants to the market this year, so there's no lack of desire to cover - but who would open themselves up to an unknown risk? Not an insurer who has to protect their shareholders, like any commercial enterprise.
Danny Cooper said that insurers are favoured by the common renewal date. I have to tell him that a majority would like a move away from it. The common date doesn't help insurers to gain new business or to scrutinise risks in the detail they would like. We'd be happy to support proposals for sensible change.
I've said elsewhere on this site that the problems we're seeing now are a combination of factors - economic and systemic. There's no single answer, but to create a sustainable, competitive market over the medium to long-term we have to start addressing the problems immediately.
We welcome Des Hudson's comments on changes to this market. We know that the SRA is the guardian of the rules, so are we going to see Law Society support for our approach to SRA for a serious look at reforms across the spectrum in time for the 2010 renewals season?
PI I
Premiums might reduce if those buying PROFESSIONAL indemnity insurance acted more professionally.
Guess what, in the main you are suffering as a direct result of a compensation culture which your own ilk have sought to bring about.
Also, many solicitors are more intent on winning money for their clients than doing what is right.
Get your house in order and insurance premiums will reduce.
somebody call the Samaritans
"...Chancery Lane announced earlier this month that it had written to the Association of British Insurers and individual insurers asking them for an ‘urgent response’ to its concerns over ‘hugely inflated’ premiums. It has also been running a PII renewal helpline, which has taken over 1,000 calls."
'...earlier this month...' - It's the 1st (October) today. The commencement date for all new PII policies. Does The Law Society believe it can actually achieve something so late in the day?
Given that the website is updated the day before (30th September in this case) the hard paper copy is delivered, it was only a week before the PII renewal date that The Law Society decided to 'write a letter' and not as quoted 'earlier this the month'.
Somebody please explain to me, the purpose of the PII renewal helpline... are we now confiding in the Samaritans?
Samaritans provides confidential emotional support 24/7 to those experiencing despair, distress or SUICIDAL FEELINGS.
somebody call the Samaritans
somebody call the Samaritans
PII
Re Matthew Youngs comments above - I saw some PI insurers in town last night and they looked happy to me!
Insurers the new age W(b)ankers
The collapse of the hosuing market was largely down to the BIG W(b)ankers!
The collapse of the solicitors profession is jointly down to the insurance industry/The Law Society!
PII
It's been extremely tough. I am in a two partner firm, with a decent claims record. I put my application in to my broker at the end of July, and was only notified last week that he couldn't get insurance on any terms. The problem was the size of my firm, and the fact that 42% of our income comes from conveyancing.
However, it's important not to panic. I would say that the Law Society's helpline, the ARP manager, and the SRA were all helpful in coming up with ideas, and in particular, drawing attention to new market entrants.
It's important to make a precautionary application to the ARP at least a few days before 30th September. In practice, so long as you can secure cover before the end of October, they won't charge you, if it's backdated.
In addition, use more than one broker. Not all brokers have access to every insurance company, and some brokers are more respected by insurance companies than others are. The best, IMHO, was St. Giles, who got us a a quotation very quickly.
Quinn, Leema Europe, and XL, are the three insurance companies that are most likely to quote small firms at reasonable rates.
Insurance - HOW DOES ANYONE WORK IT OUT?
In my view there is an underlying problem in that firms' claims records seem to have no bearing on the insurance premium sought for the companies. My own insurance has gone up and down by substantial percentages, the lowest being last year in a 'hardish' market, even though we had notified a new potential claim. Our policy has been always to notify but I know others feel this is held against a firm and will result in higher premiums so do not do this - whatever it says on the form!
There is no logic which a normal solicitor can find in the premiums demanded - and demanded they are! If you finally get one quote on 30th September despite having rung your firm/broker every day for a month, and it is that or the ARP what do you do?
With car insurance you can show around, decide if you want legal expenses cover, the level of excess, third party or comp and so on. Solicitors have a bog standard policy must be in place at a set time or death follows shortly thereafter.
The stress to partners and the cost of the time and strain on solicitors cannot be underestimated. This can adversely affect the ability of a firm to operate, especially in a small firm. I will not single out sole practitioners. Has anyone looked to see if negligence claims arise around this period as the solicitor curls up under the desk wondering whether to fire the staff now or commit suicide quietly at midnight? The companies have the profession by the b**** and know how to twist.
The market "...has seen a
The market "...has seen a marked reduction in the total premium pool (the total of premiums paid by the profession) since the demise of SIF. In 2008, these premiums amounted to £ 226 million ; in 2000, the final year of SIF, the corresponding figure was £ 255 million. "
Now it was not too long ago for me to remember that the last year of SIF resulted in many firms making numerous notifications to SIF prior to entering the open market. These notifications resulted in firms paying run off cover to SIF for a number of years. Is that included in the £255 million figure?
Eventually many of the notifications came to nothing and SIF repaid a (derisory in our case) amount back to firms and the rest? I recall something about a pension fund top up...
I will be interested to hear what the view is when the 2009 figure is reached. Given the press and comments here I wonder if it will be over £255 million without the 500 firms in the ARP and the rest that closed before deadline?
Insurance ....
That is the biggest approved fraud system in town!!!!
Any serious suggestions?
There seems to be a huge amount of hatred being aimed towards the insurers involved with Professional Indemnity Insurance. I do feel a lot of this is unfair to them, especially in light of the high loss ratios insurers do get hit with when insuring Solicitors. Most insurers (if not all) pay out far more in claims than they receive in any policy year, the only reason they have continued to insure solicitors is that until now they have been able to make up the shortfall by investing the premium until the claims are paid. In the current market these returns are greatly diminished, meaning insurers are having to put rates up in order to stop making losses. Insurers are therefore naturally more reluctant to insure the firms which are similar to the firms on their books that have had big claims, so they will either increase the premium for these or not offer terms at all. Unfortunately, insurers are indeed seeing several large claims, both in the firms that they have had their terms accepted on and through the ARP (which all insurers have to pay for).
There was never any comment about how it was wrong when premiums were dropping by a large amount, to unsustainable levels, unfortunately the insurers are going to have to make their money back. The other thing that often causes issues is poorly completed proposal forms which don't contain requested enclosures, if an insurer doesn't receive all the information it asks for, it may well worry something is being hidden. There is also the all too frequent occurrence of firms not submitting their forms until very late meaning insurers do not have time to fully evaluate the risk, so have to be a bit more cautious by charging extra in the current climate. Your PII should not be viewed like your car or home insurance where you just need to enter some figures then compare the market to go with the cheapest option for this year. Many insurers and brokers do value loyalty and are willing to go the extra mile (be that with premium or continuing to offer terms in light of a worsening situation) for the loyal renewal client a lot more than for firms who move insurer every year.
Moving the renewal date, extending the deadline this year, forcing insurers to offer terms to smaller firms, capping premiums, reducing the ARP rate, changing the way the ARP works and changing the wording so it is not so restrictive on insurers are the main ways I have heard suggested of how to alleviate the problem.
Rates are already effectively capped by the rate of the ARP, and reducing the ARP rate would mean that insurers would be exposed to larger losses from this, so less likely to offer terms at all, reducing supply, pushing up rates generally. It would also lead to good firms further paying for the mistakes of the ad firms.
Removing the ARP insurance or changing the policy wording (which as it stands is one of the most ranging of all insurance policies) would certainly help reduce rates, but I seriously do not think TLS or the SRA will go with it. This would remove some of the protection for clients which is the main reason this cover is compulsory; it would been innocent members of the public would be more likely to be left out of pocket due to errors of their solicitor. Either that or the compensation fund contributions would go through the roof.
If insurers were to be forced to offer terms for smaller (or indeed all) firms, it would lead to less insurers willing to write the business again as they would be put off entering the market as they would not be able to choose the businesses they write, removing the commercial opportunity. This would in turn have a negative effect on premiums.
I fail to see how the deadline could have been extended this year. Who would provide cover between the old and new deadlines? The insurers could not be forced to extend the period of cover unilaterally by the SRA, insurers would have to agree to extend cover (something they would be unlikely to do when they are feeling underpaid). The only way to try to force their hand would be to make extensions a pre-requisite to write business from the "new" renewal date. Something which again would make insurers drop out.
I now come to the point which seems to be gaining momentum (and indeed the only thing in my opinion that can be done by the SRA and TLS), scrapping the fixed renewal date. This does seem fairly easy to implement on the insurance side of things, insurers would be able to offer any period of cover they wanted and extend by any amount agreed by the client. There would be some jigging around maybe necessary for practising certificates and keeping to the minimum terms, if these are changed. Regarding MTCs policies could have a maximum length and all new extensions/policies after x date have to be witihin new MTCs could be put in place, on the prac cert issue, maybe have this as non-fixed to tie in with firms renewal date or keep the current fixed date as it is and not worry too much about it. As I said this is doable, but I am uncertain as to what the effect would be, at times like now it may well stop the huge increase in premiums, it would also stop the huge discounts in soft markets; the market would I imagine be more stable though. Another side is that it would give insurers a longer time to assess risks meaning firms are looked at more individually. Firms just flying in under the radar would get found out and the forms are bound to get even longer. On the bright side, good firms would have a better opportunity to show themselves as such in order to obtain better premiums.
What will the SRA and The Law Society do? I have no idea and would love to know, but they can't provide a magic solution. This will take a lot of head scratching and will not be easy, but then nothing worth doing ever is.
You too can stop being a solicitor.
I stopped practising a few years ago. The “writing was on the wall” then, yet no one was looking at the wall. They were all too busy surviving.
It was frightening ,as I had never done any other job and I went through a period where I had to do a very menial driving job. Working long hours for just above the minimum wage but that job was very good for me. It taught me that the world does not owe me a living and it taught me discipline, as being on time is everything in the driving world.
I met some amazing people, both passengers and colleagues and I got away from “high flown” ideas of the public interest and into the essential importance of customer service. I rediscovered pride in myself and in what I did. I wasn’t for ever looking over my shoulder or trying to deal with impossible demands.
I genuinely regretted leaving the driving job when it came time to go into something more in keeping with my legal training.
That something is in the public sector and I am still there. I am paid about £7000.00 per annum less than I got at the height of my career as a solicitor but I have set hours, a final salary pension and am paid overtime.
Today, I finished some files and had time to voluntarily drive one of my colleagues to a meeting with the boss of the organisation. I went home in time to have a civilised supper with my wife.
I did not have to wrestle with PII forms, mutinous staff and clients. I did not have to deal with ludicrous stereotypes which paint me as wealthy parasite whilst I am actually on the breadline..
There is life after being a solicitor. Occasionally, I regret not having the kudos that being a solicitor brings. Particularly, as I still have membership of some groups that I belonged to when I was a practising solicitor. Then I read the Gazette and realise that I was a fool to stay in the profession so long.
I am no longer one of societies whipping boys.
reality check
The lawyer profession has dreadful claim payments. something like £60,000 as a single claim is considered "good" for a firm paying maybe £25k per annum. Many firms have claims of this size whilst it is incredibly common to
see a loss between £100-500k+ in a 5 year period. These only pay £50-75k. A claim of +£1m is not unheard of. It takes a lot of premium to recoup each payment (and no profit for a shareholder business to be in!). These firms deserve support and guidance through the claims process and not just at renewal.
The significant issue per the Capita FPC ARP figures of unpaid premium is jaw dropping and massively linked to fraud and breach of accounting. This information is widely available. A cash call of £1,500,000 was made on qualifying insurers in July2009. The FPC minutes due shortly shall be very telling indeed. In view of these FPC figures what did the profession and the SRA expect to happen this year.
The lawyer profession has the widest wording ever written of all professions. The MTC wording (in addition to the common renewal date) is wrecking practices due to premium which has to be collected to defend the claims and pay indemnity settlements. The fixed run-off premium is ridiculous, out of step and inadequate; nearly every other single profession pays annually with a 10% reduction year to year, provided the claims position has not worsened. If the common renewal date is maintained this is one very easy thing to fix.
The industry put prices out and they are shot down and fed back to other brokers within hours. With such limited insurers why do some respond to every broker who asks for a copy prop?
There are many sad examples this year. Take a small law firm turnover modest of circa £130k leaves existing insurers with open claims, reservation of rights for late notifications & reserved against. The firms existing insurer were undoubtedly expensive at near ARP premium but the new insurer wanted less. Where is the loyalty and underwriting logic that the profession blindly expects/sadly receives? Would you insure someone for £2,000,000 any one claim with claims like this for a few thousand pounds. The remaining policyholders will have to pay the losses of the former insurer if they materialise. The buying pattern like this is symptomatic of the what is wrong with the current approach to insurance.
Some brokers do a superb job. We delivered savings or palatable increases for many firms this year. If the broker or insurer celebrate the close of a major campaign taking 3 months of very hard and pressured work including weekends is that really any different to a lawyer celebrating a successful conclusion to a case.
As an industry lawyers need to pay a proportionate premium for the risk presented and become a little more sophisticated as to why they pay what they pay. If the professions work together then the system can be improved, if only through mutual understanding.
Reputable insurers have stuck with the practitioners but shooting the people who deliver the messages or write the risk at a loss is not going to help. Did anyone fail to see that the Chelsea Building Society has £41m pounds of suspected mortgage fraud on its books? Calling PII a cartel or a fraud is demonstrative of the lack of understanding and 'price, price, price' attitude to buying what should be a very highly valued service.
PII
I have to say that I'm highly sceptical that insurance companies have lost money overall in insuring solicitors since 2000 (with premiums at £255 m p.a.). I've paid out premiums of £150,000 in total since then, and over the same period my insurers have paid out claims totalling £40,000. I don't think that's at all untypical.
One change that I'd like to see is much larger excesses (say up to £25,000). One should really only be required to insure against catastrophic claims.
Re your experience
Sean I think your firm is a typical risk but your claim(s) which amounted to [only] forty thousand could have been more and let us not forget TAG, miner compensation and now fraud. Even defending a perfecty solid file against a litigious lender is costly. The number of neglignce claims against solicitors in the high court soared 158% last year.
A greater excess could help. Maybe better to let the market and consumer judge it though?
Re: PII
Mr Fear, are you mental? You really don't believe that insurers have lost money since the cessation of SIF. If you honestly believe that, then you sir, are an idiot...
Whilst in the early years of open market PI insurance, money was to be made but the influx of additional markets (who seemingly only dip in and out of the solicitor PI game) drove prices down hence why you saw drastic reductions year on year. Because solicitors, on the whole, appear to have no loyalty to insurance companies (regardless of service or claims paid) and will move for a £10 saving - prices were taken down to an unsustainable level. TAG claims and mortgage fraud claims have resulted in large losses which have resulted in increased premiums. Insurance companies are businesses (as are solicitors practises) and need to make money to be viable... insurance companies are not charities.
This reply demonstrates how
This reply demonstrates how the insurance industry views solicitors (as clearly the above was written by someone within that industry).
Mr. Fear has the right to his own opinion, and at least, unlike you and I, was 'man enough' to post his comments in his own name. He does not deserve abuse from anybody, and frankly, if you can't make your point without resorting to 'bully boy' language as evidenced above, perhaps you really should restrict your postings to other forums where your language would not be considered unnecessary and offensive.
PII
Some years ago it became obvious that the profession was divided into haves and have nots.Those big money earners favoured by the Law Soc exerted an unreasonably high influence on the Society and the arrogance or apathy of the High Street pratctioner made sure that the big boys would have their way.
We have seen the gradual but inevitable deterioration of a profession of which I was proud to be a member. Call me old fashioned but the abolition of the scale fee back in 1972 started the rot. The lads at the top wanted competition so that they could rule the market. The relaxation of advertising rules followed as did the destruction of the Legal Aid Scheme. The profession is now available to the very rich. Bucket Shops will continue as will Claims Factories.The Co-Op and Tescos will do the rest. There is nothing left on the High Street apart from the dregs of what used to be a very good workload.
One of the most idiotic things that happened was that we stopped being our own insurer. It had worked well for years but, as with all things run by the Law Soc, was very badly managed. If the privateers were so anxious to get in on the market - they knew it was a goldmine - then the Law Soc could have turned it round. Instead they threw it away.
We have no-one to blame but ourselves for this situation. The arrogance, stupidity and short sightedness of my professional bretheren has ensured that a Society which had a duty to protect ALL of its members and more to ensure that ALL of the Public could have access to a decent legal service ignored those duties in favour of its most wealthy members.
I accept my share of the blame. I tried a few years ago to get a local group together so that we could protect each other and yet still compete. That plea fell on deaf ears. I gave up when I should have campaigned but I needed to earn a living. My firm shut down 12 months ago. I have spent the last 12 months potless but happy.
I was proud to be a member of the profession. I'm not any more.
I'm now engaged in other pursuits. For those of you who are left. Good Luck. You'll need it.
Where The Risk Falls
Does anyone know why the risk of a claim falls with the current insurer and not the insurer when the act/omission occurred (if not the same insurer)? If the risk remained that of the insurer at the time of the relevant event (as distinct from the time of notification of a claim), the situation would be better for solicitors and these capricious insurance firms would be forced to stop playing musical chairs with solicitors' livelihoods.
In response to some posts from the insurance industry personnel in their damage limitation attempts, I was staggered to read that it seems that their industry expects to make a profit on every contract - if a £60k claim on a £25k premium is unacceptable. If the amount of the claim is less than the insurance premium paid, why would anyone need "insurance"? My firm, which I have just chosen to close down because of this PII debacle, never once made a claim, and there were many like this. That is the essence of insurance. You win some, you lose some, but overall in the LONG RUN, you come out on top.
I, for one have very little respect for the insurance industry because their business acumen seems rudimentary. Any experienced good business person will know that you have to keep your profitable clients, no matter how little they bring in, as whatever that amount is, it is 'money for old rope'. With our 100% Employment law work load and our not holding client funds, one would have thought that any idiot would have said "yes please, help us stem our losses, or increase our profits", but no; the insurance cartel (and I believe they have operated as a cartel this year) were too busy taking care of the pounds to mind about the pennies.
Over the last few years, we have all seen the exposure of the quality of people that have been managing our money; and now solicitors are privileged to have front row seats in what is clearly the beginning of the same with insurers.
PI Renewal - limit liability
If the Law Society really wants to campaign for its members its spokespersons should spend less time giving patronising sermons on what the market is and who sets the rules (we know, thanks) and spend more time pursuing radical reform. A system which sees 500 firms left without normal PI cover is broken beyond repair. When will we follow the accountants and campaign for the right to have proper limits on our liability in our trading terms like most commercial and professional concerns? Check out the difference between the premiums of accountancy and legal practices of similar size and the necessity to pursue such a radical reform of the system becomes obvious.
Hear, hear!
Hear, hear!
Some logic please
Sorry - some have seemed to miss the point.
The reason why a policy is claims made, is that an insurer is on the book for all previous work - as lawyers im sure you aware of limitation periods. The risk is unlikely to exist in the first 12 months after the work you have done. The liability is likely to surface after a few years, particularly in a recession when people start loosing money, they look for someone to blame – regardless of when they were advised.
The gentleman who has paid 150k and had a 40k claim - I would ask in the time you have paid 150k how many clients have you worked for. ie insurers exposure potentially is 40k times the amount of clients you have. I would be confident that outweighs your 150k
No, sorry, YOU have. Perhaps
No, sorry, YOU have. Perhaps if my question was rephrased, you might understand it "why is an insurer is on the book for all previous work?"
I'll go further and illustrate my question with an example:
Mr. Solicitor in 2005, negligently instead of putting a '4' in a box on a form, puts in a '2'. Mr. Client discovers this in 2009 when the mistake costs him money.
The normal limitation period for negligence claims is six years running from the date when the cause of action accrues [2005]. There is an alternative three-year limitation period for negligence claims - not for PI - starting from the date on which the claimant first had the knowledge etc [2009].
The limitation periods that you mention only specify up to when Mr. Client can sue Mr. Solicitor's firm. They do not say why as a matter of contract, the insurer of 2005 (and not the one in 2009, if different) should not cover this loss.
My query was mainly to the legal minds, as clearly, one cannot expect turkeys to vote for Christmas.
Re 'where the risk falls'
There's no cartel operating, just some very experienced insurance people who know exactly how to maximise the best return from the solicitors PII season. This is not a problem for the insurers, just for TLS and SRA, thanks to their as yet unexplained stance on the common renewal date.
... and in the early days of
... and in the early days of Virgin Atlantic, BA said it wasn't playing foul...
PII
Potentially, of course, there may be a very big claim that will emerge. On the other hand, there may not.
Over the course of a ten year period, however, if there was a big claim, one would have expected it to emerge.
Causes of the PI Renewal Crisis
I have posted my initial thoughts on causes and solutions on http://www.lawgazette.co.uk/news/500-firms-enter-assigned-risks-pool-ind...
I doubt we would benefit from occurrence based cover rather than claims made, though they have it in Germany. I have seen a claim where the alleged act occurred in 1932...
Thanks. Your piece is
Thanks. Your piece is helpful, and I hope that those in power will take note of some of the points you have raised.
Re the 1932 act resulting in a recent claim, if the claim was not viable, I am not sure that an occurrence based system would make it viable; further, with the current system, the same claim (from 1932) would be made in the same circumstances, but to the current insurers.
How Does This Help?
"‘On the issue of more time, I should point out that a protective application (to avoid defaulting into the ARP with a 20% premium penalty) to the ARP allows, at the discretion of a qualifying insurer for cover to be backdated 60 days to 1 Oct with no financial penalty."
Won't these insurers just 'discount' the ARP amount by a little for these firms? Why should they, as a capricious industry do any different? How does this leeway REALLY help the solicitors that can't practically afford to be the ARP in the first place???
Indemnity Renewals
Some very interesting comments are made throughout this thread.
I think the point must be made that there is absolutely no doubt whatsoever that insurers are losing money on solicitors PII at the moment as a whole and the rates have been pushed lower and lower, up until 2007, to a level that could not be sustained. It is true that investment returns are down so now the premium pool must pay for the claim pool and that is going to hurt one and all.
In light of the recent frenzy of lenders requesting conveyance files from law firms over the last 18 months it seems apparent that an avalanche is possibly coming. Quite simply if strict scrutiny on these files can demonstrate an error that could (however unlikely) have resulted in a property transaction not going through, lenders will attempt to recoup losses out of the pocket of the law firm and their insurer.
It should not be forgotten that solicitors are not lenders, lenders are lenders!!! They have caused this problem; noone else.
Insurers are scared.
However they could and should have done more to help law firms.
1) Several large insurers that have been taking substantial premiums from firms for up to 8 years have suddenly decided to drop them and effectively wash their hands of any liability going forward or backward. This results in firms approaching new insurers and saying "Dear Insurer X, Insurer Y has had the benefit of thousands of pounds over the years to cover this exposure but no longer fancies it. Please will you assume liability for my career and not charge me too much??"
Of course they wont!!!
2) In addition the vast majority of insurers have been guilty, particularly this year, of a 'wait and see' culture. Quite simply they have been too scared to put prices on proposals, even ones they have had since August, for fear of selling themselves too cheaply if the market entered chaos. eg "Why quote £15,000 now when for all we know the client may only have the ARP available to them at the end of September and we can charge them £25,000 then?"
Insurers justify delays in providing quotes by saying they are flooded with enquiries. This is absolutely no excuse. The solicitor market is finite and any insurer who wants to compete in this market should ensure they are staffed up and prepared to handle these enquiries.
Hats off to some newer insurers such as XL and Quinn who have offered capacity to the market where others have turned tail and ran. However their approach of only accepting proposals from one or two brokers is unfair on firms who do not understand that their trusted long term broker may not be able to access them.
There is no easy answer to this problem currently and until something is done to limit the ability of a disgruntled lender to recourse against an innocent law firm I can not see an answer coming any time soon.
PII
Agreed, Sir Marshall Hall.
If the majority of claims issue from Conveyancing work, then would it not be reasonable for conveyancing fees to be reassuringly expensive, rather than viewed by the public ( and indeed a good many short sighted practitioners ) as the cheap "give away" service offered by lawyers.
Allowing Brokers to dictate terms, and worse still, buying in work from " providers" has sadly led the profession down a very slippery slope to perdition.
It just may be possible to still retrieve the horse, re-stable, and close the door, but it will take the sort of combined will, concerted effort and joined up thinking of both TLS and all lawyers,of which quite frankly I am not sure either group is capable.
Asda, here I come.
How insurance markets work
This has been a very interesting and important discussion. It's useful to set out very broadly though just what insurance is as there are some misunderstandings.
Insurance is the pooling of risk, and it is the most efficient way of doing that. Basically, every participant in the market pools their risk with all the others, whether they are high or low risk. That means that some firms may never have a claim, and others might have lots, but you pay your premium and you are covered whatever your risk.
Premiums vary for a variety of reasons. The risks associated with your business changing is the most common reason, but other factors are also important - the increasing costs of claims (especially connected with conveyancing as the value of property changes), and the capacity and competitiveness of the market.
The idea that insurers have made pots of money from the market is misguided. In fact, in many insurance markets, insurers make no money from underwriting at all (Motor insurance, for example). They have made money through investment returns.
In the solicitors market, the market post-SIF has delivered low premiums virtually every year. The market is, though, having these problems because claims have grown rapidly, and the opacity of the regulatory regime and the long-tail nature of conveyancing claims (they are made slowly, often years later) mean that insurers have struggled to assess the risk. Furthermore, the terms of the policy mean that insurers either avoid insuring a firm at the outset, or open themselves up to the unknown risks for possibly six years. How can this lead to a functioning, efficient market?
Insurers are committed to the solicitors' market for the long-term. Insurance is the most efficient system of pooling risk, and offers reasonable premiums where regulation is adequate, and where they have the freedom to offer the most appropriate terms to the customer. We want to move rapidly to ensuring these conditions exist.
Solicitors PII
It is interesting reading the contrasting comments on this page between solicitors and those in the insurance industry.
I would point out to those solicitors who believe Insurers are getting away with daylight robbery, that the policy wording afforded to them is ridiculously wide (as has already been mentioned in previous comments). Insurers have not been making bucket loads of money over the years as many people have supposed on this page. You only have to look as far as the many Insurers that have entered and now left the market to see that. Are you seriously suggesting that a commercial company has stopped writing your class of business because they have been making too much money!!!!!
To the Insurers I would point out that despite all the complaints they have made over the years about the level of cover provided, the common renewal date, the claims and the fact that they don’t make any money, they have yet to stand up as one and tell the Law Society and the SRA that they can no longer continue to write Solicitors PI on the current basis. Why? The simple answer is the sheer amount of premium written on a single day. Some Insurers have seen the £ signs and jumped in with both feet, only for them to run away with their tails between their legs when they realise their mistake.
We will have to wait and see if things change as a result of this year’s renewal, but to all you Solicitors out there I would make one final point. Show some loyalty. Over the years it has become a common joke that you guys would quite happily jump ship for as little as £10. If a firm stays with an Insurer for a long period (and providing you have a good claims history) then that Insurer may be more willing to offset (at least to some degree) very large premiums in a hard market against premiums already earned.
Absolutely spot on!!!
Are you seriously suggesting that a commercial company has stopped writing your class of business because they have been making too much money!!!!!
PII
We are a small ethnic minority practise with only two partners having a clean claims record and no other complaint issues we assumed that we would have no problems obtaining PII. However to our dismay we were rejected insurance by a number of companies. The reasons varied from number of partners, annual turnover, to the area of law we practised. I felt that this was all a load of nonsense, and I could not understand how we could be rejected PII considering that only 30 % of our work was conveyancing, and the rest of our work was all low risk. Our Practise was forced to put in an application to the ARP as we had given up hope of obtaining Insurance.
I felt extremely apprehensive at the prospect of joining the ARP on account of the implied stigma. In that the assumption is, that we are a sub standard practise and have numerous complaints and are uninsurable, which in our case could not be further from the truth.
Indeed the SRA on their website indicate that:
“The assigned risks pool (ARP) provides cover for firms which cannot get cover from qualifying insurers or cannot reasonably afford the terms available to them. This might be because the firm has
- a poor claims record.
- a major claim outstanding but not yet decided.
- other risk factors…”
However there are a number of good firms who have been forced into the ARP, and I hope that the SRA will revise the above explanation as it is inaccurate. Eventually we did manage to obtain PII cover but at a massively hiked premium. It feels as if the Law Society are only concerned with PR and chasing other foreign causes. Small firms like us are suffering on account of the downturn in the market, and the hiked PII and the difficulties faced by lack of cover, just compound the problem. We do not expect much from the Law Society; however what we do expect is that they fight our corner. What I cannot understand is why the Law Society had written to the ABI only days before the renewal date. If the Law Society knew renewal would present a problem surely something should have been done earlier. This is another classic example of the Law Society doing little to help its members.
Time to lock the doors?
First a rebuff - as the FD of a volume firm I take exception to Sir Marshall Hall's comments about PI factory practices (see first comment). We act for thousands of clients per year and have not made a claim on our PII for 7 years!
However, I do agree there needs to be a change to the PII system. This year we SAVED 47% and reduced our excess. We achieved this with a change of broker and buying as part of an alliance with other medium sized practices, giving us a more "buying power". We are also seeing a benefit from working hard on a revamp of our systems and risk management - a process that has been ongoing for over a year - efficiency and risk management do not always fit hand in glove.
The farce is the single date. Our poor broker (well probably not financially!) has been manic trying to get things sorted, and we only got our quote two weeks ago despite submitting the papers in July. I get the impression he can't have the time to service all his clients as well as he would like this time of year - and I guess when it comes to that the bigger tickets get looked after first.
We know several firms who are about to cease trading and some who have already. They are good professional people with decent businesses. Some have good track records but did a lot of conveyancing so suffered PII wise. Others have simply had enough. One described it as paying a "30% PII tax" on top of his 40% income tax - he's off to get a job as an employed solicitor. With negligible or negative goodwill, difficult exit, spiralling costs and threat of new entrants many people are regretting becoming partners in the first place.