This year, renewal is about what is not happening in the professional indemnity insurance market - this is not the year that the assigned risks pool is closed down, nor the year that the renewal date will change, and the impact of alternative business structures has yet to be felt.

Despite this, the 2011/12 season is likely to see further rate rises and is a key moment for firms as they take stock before the major changes which lie ahead for 2012/13 kick in.

For firms, what often dominates the renewal process is choice - or rather the lack of it. As is widely known, the problem of capacity was particularly acute in 2010/11 with the withdrawal of Quinn from the PII market.

For 2011/12, the combination of insurer unease at the predicted effects of the global financial crisis, and recessionary conditions crystallising into claims (and the fact that the significant changes which could open up the market, such as the closure of the much-maligned ARP, have yet to happen) mean that capacity in the market is still tight.

At least there are no big departures this season. Last month market-leading insurer Chartis confirmed that it will not write any new business for 2011/12, blaming the failure of the Solicitors Regulation Authority to abolish the ARP with immediate effect, but it will not leave the market altogether.

In addition, there are a couple of new PII insurers to enter it: First Title (which may already be known to solicitors for its homeowners protection line of business) and Enterprise (which may also be known to solicitors who watch football, as it sponsors Leeds Utd). They could give firms a bit more choice.

One stumbling block which could be holding insurers back, and which is peculiar to this renewal season, is what will happen to those firms currently in the ARP. Richard Brown, director and head of sole practitioners at broker Prime Professions, explains: ‘This is an important time because at the moment in the ARP there are those firms who came into it in 2009 and who are entitled to stay in for two years and there are those firms who came into it in 2010 but can only stay in for one year.

This means there are two groups of firms that have to come out at the same time. Either they will manage to get cover, or insurers could potentially have a large run-off bill.’

Sole practitioners

Historically, it is sole practitioners who have tended to suffer most from lack of choice, according to Clive Sutton, honorary secretary of the Solicitor Sole Practitioners Group and a member of its insurance subcommittee. He says: ‘The market is more restrictive for sole practitioners and it is not clear why that is.’

Sutton argues this is shortsighted on the part of insurers and that sole practitioners can be a better bet than a rocky partnership: ‘We don’t agree that one-member firms are a problem. One sole practitioner is better than two or three practitioners - there have been failures in small partnerships because the partners don’t know what each other are doing. Sole practitioners arguably take more responsibility.’

But Sandra Neilson-Moore, European practice leader at Marsh, says it is not only the small firms that do not have the range of options they might wish for: ‘If we are looking at primary capacity, there are few choices at either end of the spectrum - for sole practitioners, but also for the larger firms.

For larger firms, when the ARP goes, they will be an attractive proposition for insurers. But at the moment they are not, as a result of the disproportionate burden on them coming from the ARP (with larger premiums, their share of the total premium "pot" is highest).’

Inextricably linked with the issue of choice is the problem of cost. As long as the market remains ‘hard’, premiums will be exacting. In recent years, firms have seen their premium rates rise and this trend shows no signs of changing. The percentage of firms that saw an increase in 2008–9 was 55%, according to the Law Society’s PII Renewal Survey published in July this year, but, in 2010-11, the proportion rose to almost 70%.

External pressures

What determines the rate of increase (or decrease) of premiums is a bit of a mystery. The Law Society Survey concluded that the rate was affected by what we might call ‘internal matters’: the size of the firm, its claims history and any changes in the number of fee-earners.

But there are outside pressures too, as Brown explains: ‘Those in the market are looking to hold rates in line with a firm’s income and claims experience. However, there are two pressures here. First, if there are these high levels of conveyancing and commercial claims coming out of the economic downturn, there is an upward pressure on rates, and, of course, there is still the ARP exposure that affects the rate.

'Yet, there is also downward pressure because there are going to be a couple of new entrants. With new insurers, there is greater competition and prices could come down. New insurers have to price themselves under the existing insurers, so this should give solicitors some hope of cheaper premiums.’

The exposure to the ARP which Brown refers to is exacerbated this year compared to last because in 2010/11 some underwriters came up with a scheme whereby they could minimise their exposure to the pool on declared premiums. This year, the scheme is no longer available and so underwriters will look to upload premiums instead, as John Verry, director of risk at TLT Solicitors, says: ‘This could impact on prices by as much as 20%.’

Overall, the brokers are predicting increases again, as Brown concludes: ‘Existing insurers are considering 5–10% increases, but that is not taking into account the effect of new entrants’.

Yet any increases should also be seen from a longer term perspective. As Mark Philmore, director of north-west insurance broker, MFL Professional, one of the few brokers to have access to new entrant, First Title, says: ‘If you go back to the time before the Solicitors Indemnity Fund (SIF) was disbanded, practices are still paying less than they were paying into SIF.’

It is also the case that some firms will find their premiums go down. Neilson-Moore says: ‘Predicting a percentage increase is misleading because that will not be the case for everyone. Every firm’s situation will be slightly different. But what we can say is that insurers are likely to want to keep those premiums up because of the ARP. Insurers are not altruistic. They are businessmen trying to make a profit.’

One sole practitioner only too aware of this is Ronnie Hutcheon, who runs his own personal injury and litigation practice in Merseyside. He says: ‘My insurance has gone up dramatically, by 300%. They say that it is to do with [a huge] increase in turnover, but this should not be the only factor - I have an exemplary record.

'I have had no claims and no complaints in 23 years of practice. That should be reflected in my premium. The reality is there is so little competition out there.’

Hutcheon believes that some sole practitioners feel penalised and are turning away from running their own practice due to the high costs of insurance. ‘I know at least two sole practitioners who have decided not to renew and are giving up to become locums instead’, he says.

Sutton, by contrast, maintains that sole practitioners are faring better this year: ‘Of course it’s still early days but we are not seeing people tearing their hair out as we have in previous years.’

Brown agrees and says that he has seen more sole practitioners come forward. He explains: ‘We are seeing more start-ups as perhaps people are being let go at the larger practices and setting up on their own, or they are choosing for lifestyle reasons to go it alone. They are a buoyant breed.’

Within the two to ten-partner bracket, the capacity and rates are likely to depend on the type of work the firm does and claims history, as well as any major changes in turnover (such as with Hutcheon).

Marsh is offering a new service for this bracket that includes exclusive cover provided by Liberty or XL and has added services, including spreading premium payments and funding practising certificates through a third-party credit company. Neilson-Moore says: ‘I would say this of course, but I think any firm in this bracket, no matter how happy they are with their current insurer, should at least get a quote. This is the time to find a package that will stand the test of time.’

For the larger firms and boutique firms who undertake big transactions, and so take up ‘top up’ or excess layer insurance as well as compulsory insurance, the problems are slightly different. This particular market is more competitive, which keeps up the capacity and keeps down premiums. There is some concern, however, that a turbulent year for insurers more generally (natural disasters, global political and financial instability) may impact on this line of business.

Whatever the state of the market and whatever happens to premiums, this could be a crucial year for the more vulnerable firms, says Brown. ‘Firms need to think ahead of the changes in 2012/13 because after that firms will be much more in the hands of their insurers. After 2012/13, if your insurer won’t provide you with a quote or is not in the market anymore, you will go immediately into run-off – but with the insurer you are with at that point in time.

'There will also be new entrants who maybe don’t have the requisite security ratings. Either way, it really matters where you place your business this year. Getting the balance right between price and quality is key now - and you do need good advice.’ Given the state of the market, the renewal process is certainly a challenge. Last year the Law Society PII helpline, which opened for business for this season at the end of August, received almost 2,000 queries.

These problems ranged from actually getting cover to concerns about the renewal process itself, such as the drain on a firm’s resources of having to do multiple proposals and about being given insufficient time between getting a quote to actually deciding on cover.

This particular issue was subsequently taken up by Chancery Lane. Elliott Vigar, head of regulation at the Law Society, explains: ‘We raised this with insurers and brokers. Our view is that 21 days is a reasonable period. It needs to be long enough so that firms aren’t just accepting a quote because it is there, but not so long that it is unrealistic in terms of the ultimate 1 October deadline.’

As well as the helpline, the Law Society is also running its Safety Net Scheme. The scheme did run last year but as Vigar notes: ‘It wasn’t as successful as we hoped. It provided help to some but we are optimistic that this year’s scheme, with a new format and a new provider, will be an improvement.’

Prime Professions has been appointed partner for the Law Society’s scheme for this season. The scheme will seek to assist firms in the 30-day period after the 1 October renewal date where they can still get cover without incurring a penalty and then for the subsequent five months if they are in the ARP.

Vigar explains: ‘If, after an initial free assessment and review of all broking options available in the market, a firm has not secured insurance then Prime Professions, for a fee, will offer a consultancy and review process to help remedy any issues.’

In addition this year, the scheme is being extended to the pre-renewal period. As Vigar explains: ‘Unlike last year, there will also be a full and effective consultation process before the renewal date. We are looking to work with firms which are struggling. Prime Professions will also provide assistance in getting presentations and proposals right to help firms get quotes in that crucial 30-day period before 1 October.’

As Prime’s Richard Brown says: ‘We want to help them explain what they are doing to underwriters, and help underwriters understand the risks beforehand.’ Vigar concludes: ‘We will help as much as we can but not all firms will get insurance as these are tough market conditions for many and the profile and claims experience of some firms remains problematic.’

Ethnic minority firms

Better dialogue between the insurer and the insured is a recurring theme of the renewal season, as it is when it comes to the highly contentious issue of the insurance (or lack of it) offered to black and minority ethnic (BME) firms. In the last two years, there have been allegations of discrimination against BME firms in getting insurance cover.

The issue remains live. According to the Law Society 2010/11 Survey, BME firms continue to be disproportionately represented in the ARP. Comparing small BME firms with small non-BME firms, the former were twice as likely to be in the pool. When putting forward their proposals, partners in small BME firms were seven times more likely than small non-BME firms to state they were required to submit CVs or state whether they were undertaking the Qualified Lawyer Transfer Test.

However, the survey found that these issues did not translate into significantly different premium levels or outcomes. These were more linked to the size of BME firms. The survey concluded that although it could not ‘prove discrimination’, it could ‘identify differences which may indicate possible indirect discrimination’. It could be, for instance, that insurers impose, through their underwriting processes, provisions or criteria that negatively affect BME firms disproportionately.

Cordella Bart-Stewart, director and vice-chair of the Black Solicitors Network, says: ‘There were a huge number of complaints in 2008-9 and 2009-10 of alleged discrimination. The problem has not been at that level this year but we believe this is because a lot of those firms that were complaining have now demised!'

She adds: ‘In addition, we have to ask ourselves whether there are potential new entrants to the profession, including foreign lawyers, who are put off even trying to get insurance. The fact that the problem is not being raised does not mean it is not there. We do not believe insurers are behaving better. The insurers have scaremongered the Law Society and the SRA into scrapping the ARP and to holding back on this issue because to push forward would cause difficulties for everybody.’

Pat Corcoran, head of diversity at the Law Society, contests this: ‘We are continuing to keep the spotlight on what is happening here. Recently, we wrote to the Equality and Human Rights Commission (EHRC) with our survey and are waiting for a response from them as to how they see this being taken forward. The EHRC in turn is putting pressure on the Association of British Insurers to take action.’

Corcoran adds: ‘What we are looking for here is transparency. Where there are questions being asked by insurers and information is being gathered, then we need to know what [those questions] are and why they are being asked and if they are legitimate. All we are asking is that the insurers explain themselves.’

Brokers to whom the Gazette spoke denied discrimination. Neilson-Moore says: ‘The business of underwriting involves decisions based on sound underwriting criteria. Anything else is simply bad business. Marsh would not tolerate discrimination if we came across it.’

In short then, the 2011/12 renewal season is a tough nut to crack for many firms and solicitors are hoping that 2012/13, when the ARP is no more, will be a huge improvement (except of course for those firms who were in the pool and didn’t get out).

Certainly it is with the ARP that discussions about PII always end up. According to brokers and insurers, the ARP is the ‘roadblock’ to a truly competitive market. ‘The biggest issue for insurers is the underlying terms and conditions of the SRA, and that is in the main the ARP,’ says Philmore. ‘The ARP means that insurers are being asked to insure practices that they chose not to insure.’

Yet, even while the ARP is still in existence, insurance cover is selective and individualised - each firm is treated differently and has its own premiums history - because each firm has its own risk profile. But when the ARP goes, these nuances and differences will remain.

Insurers tell the profession that the abandonment of the ARP will change things for the better. They may be right. But by then there will be alternative business structures - and it remains unclear what effect they will have on the market.