Harder indemnity market hits firms

The legal profession saved nearly 80 million in professional indemnity insurance premiums during the first year on the open market - but this saving is set to decrease over the next year as premiums increase by up to 15%.It was also claimed this week that many commercial practices are at risk of being thrust into the assigned risk pool (ARP) - for firms which either cannot find cover or have not arranged it in time - when the market hardens.Figures from Lloyd's broker Alexander Forbes show the total premium income for the coming year to be 180 million, increasing from last year's 163 million.In its last year, the Solicitors Indemnity Fund (SIF) collected 242 million.Writing in the Gazette this week, Peter Farthing, chairman of the Law Society's indemnity insurance committee and partner at City firm Clyde & Co, said there was some justification for firms paying more for insurance in the SIF's last year.'In fairness to SIF, contributions were larger because of the threat of Y2K computer glitches and because the SIF had to provide for the increased claims notifications in its last year,' he said.

'Even so, the profession as a whole paid less for its insurance in the open market than it would to the SIF in a normal year.'Steve Holland, Alexander Forbes' division director, said: 'There is still a saving on premiums for the upcoming year, compared to the SIF - but I can see this gap closing as the market hardens.

There will probably be a saving again next year, but premiums will continue to rise as insurers see more claims come in from solicitors than they expected.' He also forecast that insurers would start to 'look seriously at individual track records of firms'.

He said: 'I have had clients whose premiums have quadrupled due to a multi-million pound claim.'Mr Holland predicted that scrutiny would lead to more firms joining the ARP.

He said: 'A large number of commercial firms should be in the ARP, instead of polluting the market.

When risk management kicks in, I can see far more firms in the pool.'Despite the punitive nature of the ARP, Paul Cusition, general manager of St Paul International, said: 'There has been a lot of pain, lack of sleep and frustration: [solicitors] have left renewal later this year than last year.'Alexander Forbes estimates that up to 80% of firms renewed their policies with the same insurers.

By Andrew Towler