Hundreds of law firms who insured with failed Latvian insurer Balva face being caught in an ‘unrated cycle’ after offers from other unrated insurance providers.
The Law Society today warned that members are being offered to transfer policies across to unrated insurer Berliner Versicherung Aktiengesellschaft, by the same broker that previously sold policies from Balva.
The insurer captured 7% of last year’s professional indemnity solicitors market – roughly 1,300 firms in total – but is facing possible insolvency after its operating licences were withdrawn by the Latvian regulator.
Law firms affected may have less than a month to find an alternative insurer if Balva is declared insolvent.
Law Society chief executive Desmond Hudson (pictured) said the development had been expected but that law firms were now vulnerable to approaches from other unrated insurers offering lower premiums.
‘While transferring policies across to another unrated insurer may be a short-term option until the next PII renewal date we continue to urge firms to break the unrated cycle and investigate carefully their alternatives to opt for rated cover this renewal,’ said Hudson.
‘Firms who elect to go with unrated cover should be under no illusions as to the potential risks that flow from that decision, both to the viability of that firm and in terms of the potential for personal liability falling on partners if the worst should happen.’
In accordance with Latvian law, Balva has to launch the winding-up process by appointing a liquidator and agreeing the procedure for debt covering with the regulator, or transform the insurance company into a legal entity that does not pursue insurance business.
If an ‘insolvency event’ occurs the Solicitors Regulation Authority will contact all firms currently insured with Balva explaining the action they must take.
This would involve any firm that has PII with Balva obtaining replacement cover within four weeks of confirmation of any insolvency event.