Firms shut down ahead of PII renewal
Law firms of various sizes have begun to close down ahead of the professional indemnity insurance (PII) renewal deadline, with others contemplating closure to avoid paying spiralling PII premiums for the second year running, the Gazette has learned.
Apart from soaring premiums, firms trying to survive the 1 October deadline have complained of long delays between requesting and receiving quotes from insurers, and miniscule timeframes within which to consider and accept quotes – with some insurers demanding responses in just 24 hours. The Solicitors Regulation Authority has asked firms for evidence of poor practice by insurers, while Nigel Day, chair of the Law Society’s PII working group, said that certain insurers will be contacted about ‘unhelpful’ practices.
Conveyancing firms, and firms that have done conveyancing in the past, are finding themselves hardest hit once again as insurers raise premiums to cushion themselves from potential mortgage frauds.
The troubles have led solicitors and brokers to call for an extension to the 1 October deadline. However, the SRA said that it is ‘not possible’ to extend the deadline this year and that there are ‘no plans’ to move from a single renewal date next year.
Joe Golstein, partner at two-partner London firm B&G Solicitors, said that he will shut his doors after being quoted a renewal premium of £110,000 – up 450% from £20,000 in 2007, and equivalent to 25% of his firm’s turnover. ‘The insurers are holding the profession to ransom,’ he said, calling for an extension to the 1 October deadline and criticising delayed quotes from insurers. ‘We work bloody hard. Why should we have to work so hard just to pay rent, overheads, and the insurers? I would be better off working as a tube driver.’ Golstein said that 60% of the firm’s work is in conveyancing, and he made no claims on his policy all year.
Frank Maher, partner at Liverpool consultancy Legal Risk, said that one of his clients, a 12-partner firm, will enter administration in the next few days to avoid paying a six-figure PII premium. He said that another client firm with a £20m turnover is set to enter the assigned risks pool after uncovering major mortgage fraud problems.
A spokesman for the Association of British Insurers said he was not aware of insurers not giving enough time to consider quotes. He added that premium increases were a result of the rise in mortgage fraud risk, where ‘the last men standing are often solicitors’.
The Law Society runs a PII renewal advice service on 020 7320 9545 or email PII@lawsociety.org.uk.
Comments
Perfect Storm
The perfect storm begins?
Deliverance Is Here
We are a small firm, and will be closing down later this month. Our fax to the Law Society and the SRA etc, confirming this has been drafted and is diarised to go out from 24/9. We stopped taking on new work in August, and have advised all existing clients of our plans.
We have made no claims, do not (out of choice) hold client funds, we do 100% Employment law (and so can do this as non practicing solicitors). We have been declined by 2 insurers (our turnover is too low! We thought that in our circumstances, this would mean we posed a lower risk).
In any event, we have decided that it is cheaper for us to close down now and pay 250% of this year's very low premium for run off cover, rather than hang on and pay a ridiculous premium this year (if we get an quote, it will be high as insurance companies seem to think solicitors are cash cows), and then have to pay a crippling run-off cover fee next year if we find ourselves in the same situation next year.
By closing down, we will eventually save on PII, practicing certificate fees and everything else that goes with being a small firm these days. I really can't wait!!!
This comes down to Insurers
This comes down to Insurers following profit rather than market share for the first time in years and the feeding frenzy around the 1 October deadline and lack of resource to properly assess risk on a case by case basis means that smaller firms are largely being considered high risk regardless of the facts.
iconflicts galore
Indemnity insurers are seeking very high premiums from conveyancing solicitors because conveyancing is seen as high risk work. Why then do we continue to act for both lenders and borrowers. Surely it makes sense for the lenders to have their own independent representation. This will reduce the risk of fraud, which I was told is a major factor for the increase in premiums. Or is it just a way of increasing premiums for smaller firms and in consequence, get rid of them.
I for one an seriously questioning whether it is worth continuing.
A different side
The problem comes down to a lack of impartial information, particularly for small practices that need some guidance. If you have less than 3 partners there are proabably on 5 insurers that will even consider your risk this year (and at leasr two of these can only be accessed by certain intimediaries). Unfortunately there are far too many brokers that have been chasing the cash cow that is the SPI brokerage. The SRA/Law Society practice note did nothing to cut through the half truths (and lies) that brokers feed their clients each year or stop the situation where a firm can send in their submission in June and still be waiting for terms with 8 working days to go. Yes it is easy to bash the Insurers, but they are buisnesses just like the solicitor practices and cannot afford to continue writing cover if they are not providing a return for shareholders. It is the brokers that should be bearing the brunt of your anger, as how many can honestly say that they have provided you with all the facts about this renewal. The employment firm that has two no quotes - I'd ask who else have you approached, what happened with your current insurer that meant they did not want to offer cover and more importantly what has your broker told you about your other options.
A good broker should have advised you of the difficulty of this renewal as far back as January, as all the signs were already there. Investment rates down (the main reason that premiums have been kept low/falling each year is due to the investment return on securing £5-25m income on one day of the year), reinsurance rates have increased and claim frequency/size is known to increase in an economic down turn.
A good broker should give you an impartial picture of the market and be open about the other options, if there are only 5 insurers that will quote for you and they can only access two then they (or more importantly the SRA) should be telling you how to access the other 3.
Finally, the experience that I have seen this year is that the firms that are struggling are those that have failed to recognise importance of marketing the risk - have listened to their brokers [half truths], who clearly have their own financial agenda's OR the firms have other more serious problems. Does anyone truly feel sorry for the 12 partner firm detailed in the article. Presuambly in uncovering the fraud the bill has fallen to the insurer on risk at the time. So really if you think about it this firm is part of the reason why you are struggling to get PI cover this year. [that and the fact that the minimum terms make insurers pay for fraud, lies and deceit)
To a broker from the employment firm
Thanks for your comments. We are a 1.2 partner firm (2 partner, or if you like, sole practitioner with another partner to provide peer review on a p/t basis without breaching client confidentiality).
Our current insurer, QUINN, said 'No', because (we were told) the 2nd partner worked in the firm p/t! This 2nd partner is also a qualified solicitor with a lot of experience, but more importantly, worked in the firm on the same basis last year when QUINN insured (and since the firm was set up in 2004). Funnily, I understand that QUINN insures sole practitioners.
We have never made a claim; never had a complaint made about us; opted not to hold client funds (in trying to demonstrate that the risks of insuring us were low, and also of avoiding the red tape involved with operating client accounts). We have never done conveyancing work.
Travelers also said 'No', but we were not told why. Last year, they declined to insure us on the basis that our turnover was too low. Even though our turnover was much higher this year, we assume it was still too low for them.
Now what are the risks of a low turnover:
1. that you might not have enough money to live on, and resort to stealing client funds? Now that would be a logical possibility IF we held client funds.
2. you might give up, lumbering the insurer with a 6 year exposure (diminishing every year, don't forget) for a 2.5 year premium? If so, why not just load the run-off cover quote? In any event, a t/o that is rising every year does not support such a hypothesis, and a £60k profit in such a firm is in my view, quite decent - shame the insurers never ask you what your profits are!
We were not told of other insurers, but frankly, are no longer interested in carrying on with the practice as it is.
I don't "blame" the insurers, but am not impressed that the Law Society/SRA did not authorise enough insurers to deal solely with the small firms market. If you authorise a few insurers without specifying what market they should service - what are they going to do? Cherry pick. Nothing wrong with that if you can survive on just cherries.
IMHO, our regulator and representative body have not only shown a lack of commercial awareness, but have also failed to appreciate the problem and deal with it appropriately. To be able to say it is doing something however, the Law Society has set up a Helpline that offers nothing in addition to what was available before. It even took me to ask them on the helpline why they are not considering introducing a tiered ARP; say costing - 2% of turnover for firms with no claims ever; 5% for firms with no claims in the last 6 years etc. etc. 'A good idea', the lady said. 'No we have not thought of anything like that, I'll put it forward'. No practical SOLUTIONS were (earlier in the week when I called) being considered. If I needed to be a solicitor to do the work I do, I would be seriously depressed by now!
If enough small firms go under, sooner or later, the cost of access to justice will get higher, and then there will be an inquiry as to why etc. etc., but our representative body seems content right now, to sit and just watch the whole story unfold. From 1 October, so shall I:-)
To Employment Lawyer
Insurers are likely to be concerned about your ability to meet an excess payment, should a claim arise. As in my earlier article there are probably 5 main insurers that are writing cover this year. Just because two have turned you down does not mean the other three will. Zurich have in the past offered terms direct to sole and two partner firms. There underwriting critera seems to have tightened this year - but in the main they have been turning away conveyancing practices not employment lawyers. The two others are AIG, who only offer terms through HSBC for firms of 1 and 2 partners and a new insurer XL, who are exclusive to AON under three partners.
The problem for smaller firms is not the Law Society/SRA not authorising enough insurers. It is that the insurers have written this cover historically have made losses and no longer wish to write cover. Interesting idea about the ARP but premium suggestions are far too low. The ARP was a net cost to the qualifying insurers last year - meaning that even collecting premiums of 27% did not cover all the outgoings. Where their is a deficit, it is the qualifying insurers that pick up the tab to the tune of their percentage market share.
What is often forgotten is that unlike PI for some other professions where the buyers are purchasing as a way of protecting their business. The minimum terms are their to protect the public, which gives the Insurers very little scope to repudiate a claim. They are in effect the blank cheque book for all the mistakes of the profession.
If you haven't already confirmed your decision to close you may wish to consider the other options, a google search for Zurich, HSBC and AON should point you in the right direction.
To A Broker
Our XS amounts last year were £2000/claim; to be no more than £6000/year.
Thank you very much for your advice. I suspect we are done with this business model, but I shall certainly pass on the word to the many other people whom I know have been in the same position as we (I) have been. I wish my original broker had been more like you, as, if so, we might not have even gone down the road that we are on now; but 'c'est la vie'. Thanks again.
Single Renewal Date
The reasons for the current market problems are many, but the 1 October single renewal date is a bigger factor than many outside the industry realise. It's a logistic headache that people in the industry resent having imposed upon them by the Law Society for no good reason, although few will admit it. It's allowed a few insurers and brokers to build unhealthily large market share (in particular sole practitioners) and squeeze out many other smaller players who normally help keep the market aggressively competitive. No other profession has the same PI insurance problems as solicitors because no other profession has a single renewal date for it's members.
round and round
Law Society V KPMG ... Reporting Accountants owe a duty of care to the Law Society.... so Lawyer gets it wrong and the RA is in the firing line.... PI insurers are PI Insurers.... So could the insurers end up paying lawyers to fight each other, one representing the errant solicitor (on behalf of the Law Society) and one representing the errant Reporting Accountant?
All funded by PI?