Firms should shop around the booming insurance market, says Geoffrey Pointon, as he calls for a post-Clementi review of governance processes

This year should bring good professional indemnity insurance tidings to hard-pressed legal practices wrestling with higher costs and fee-resistant customers.


Since the 11 September 2001 terrorist attacks - when capacity for all types of insurance shrank - solicitors, without knowing it, have been battling for their share of the insurance market and wondering why indemnity premiums were so expensive, particularly for those practices with good claims experience. This year, capacity is flooding back, with more underwriters determined to pick up their share of this £250 million book of business. Shopping around for cover this year should be rewarding.


A lot can happen between now and the 1 October renewal date. Capacity can shrink for all sorts of reasons. The current volatility caused by our own terrorist outrages has inevitably had an impact. Falling interest rates can affect underwriting profits, as can the withdrawal of capital by capricious backers.


So this year's message to firms renewing their insurance is shop early and make hay while the sun shines, as it is most unlikely the climate will be as favourable again.


Looking ahead to 2006 and beyond, the picture is somewhat cloudy. The appearance of a new regulator, post-Clementi, will have significant consequences for insurance. That market is cyclical and some insurers will be buying in business now, so as to acquire market share. They may well catch a cold and have to raise their premiums to make up for losses, though this is unlikely to impact on law firm clients for a year or so.


The new £2 million minimum indemnity limit will almost certainly be seen as too low when compared with the requirement imposed on other professions. Small practices may be permitted to remain at this increased level, but larger firms - already obliged to purchase considerable top-up cover - may be asked to cover themselves on a multiple of turnover. Of course, prudent practices already buy excess layers of cover, but surprisingly a high percentage continue to make dangerous economies in this area.


The new regulator will need to demonstrate that it is on the side of the consumer. The public will be encouraged to claim for incompetent legal work and there will be more literature to guide them to compensation. Underwriters have already been scared by previous run-ins with fresh-faced regulators galvanised by parliamentary zeal. The Financial Service Authority rulebook, if printed, is rumoured to stand six feet off the ground.


Professional practices would be wise to anticipate the oncoming threats by looking at governance processes before the more difficult 2006 begins. It is likely that more will elect to become limited liability partnerships, or to appoint professional managers to run their businesses, rather than requiring fee-earners, untrained in management, to combine this task with fee-earning.


Firms should actively review any outstanding complaints now and get them settled. Delays will prove expensive. Advance risk analysis and risk management to the top of the partners' meeting agenda. It may be appropriate at this time to enlist external specialist consultancy support and/or pin responsibility to the chest of a capable partner.


Regulation, compliance and governance have been a rich source of income for practices in recent years. Now the maxim 'physician heal thyself' comes to mind if this year's indemnity insurance bonus is not to turn into all work and no hols in the years to come.


Geoffrey Pointon is the chairman of professional indemnity broker PYV Group