At least nine firms closed in the three months leading up to the rush to renew indemnity insurance, new figures show.

Analysis of the legal market from business advisory firm Hazlewoods found that these nine firms closed due to their inability to obtain professional indemnity insurance before their 1 October renewal date.

In the previous 12 months, covering the year to 30 June 2022, another 37 firms had to close after failing to secure cover, as the PII market became harder due to an increase in claims. Insurance is now cited by firms as one of their biggest costs and the difficulty in arranging PII has been a regular issue brought up by those operating on the high street.

Hazlewoods said that, on average, PII now costs almost 5% of law firms’ turnover. But firms relying on conveyancing for a significant amount of their income can now pay as much as 20% of their turnover for cover. Insurers regard firms that make more than 25% of their revenue from conveyancing work as higher risk for professional negligence claims and thus charge higher premiums to these firms.

Analysts say that the rise in premiums is being exacerbated by more insurers reducing their capacity in, or exiting completely from the market. There are also few new entrants who are looking to acquire a share of the lawyers’ professional indemnity market. With an increasingly limited number of insurers to choose from, this has made it difficult for law firms to shop around for a competitive rate, and with the prospect of more claims against lawyers brought on by the global financial crisis there is the scope for the situation to get worse.

Ian Johnson, associate partner at Hazlewoods, said: ‘The cost of insurance is becoming an increasing problem for law firms. This is particularly the case for smaller law firms who may not have the same risk management processes as large law firms and ones focused on conveyancing or other higher risk areas. With the number of insurers in the market shrinking and those still left increasingly risk averse, premiums could continue to rise.’

In the build-up to the traditional renewal date of 1 October – still used by around two thirds of firms, insurance experts said that premiums were still rising despite market conditions improving.

 

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