Indemnity rates may rise next year

A harder insurance market and less competition between providers could lead to higher professional indemnity premiums for solicitors next year, insurers and brokers warned this week.

The warning coincided with the release of figures which revealed a drop in the amount spent by the profession on insurance cover from around 250 million paid to the Solicitors Indemnity Fund (SIF) last year to 147.5 million on the open market.

Although firm figures have not yet been released, initial reports indicate that St Paul - the Law Society's joint venture partner in offering open market insurance - was the biggest winner obtaining around 25%.

QBE International secured around 15% while Zurich Professional secured slightly less of the total market.

Of the other 35 qualifying insurers, CGU Insurance, Cox, AIG Europe, Saturn Professional Risks, Royal and Sun Alliance and Hiscox Insurance also fared well taking between 4% and 6% of the market each.

However, despite savings for many firms (see [2000] Gazette, 7 September, 1), Ray Brown, a managing director of insurers Marsh - which advised the Law Society on the market during the transition away from the SIF - warned: 'The market for professional liability insurance has been toughening and getting harder over the last two months, if that continues premiums for solicitors may go up.'

Although Martyn Roffey, chairman of Aon's Professions Group, agreed that there had been 'some signs of a hardening market,' he said it was not significant enough yet to affect premiums.

What could drive premiums up, according to Mr Roffey, was what he described as 'some unsustainably low premiums' triggered by a highly competitive market.

Mr Roffey added: 'A lot of insurers went out to gain a section of the market place and because a number were all doing the same they had to reduce prices to get a market share.

Come next year, some insurers will have to look seriously at increasing premiums.

The huge reduction in the premium previously paid to the SIF would seem to make it likely that some of the new qualifying insurers could find it hard to make money at the premium levels they have written.'

Eric Franz, head of financial liabilities at CGU Insurance, said that with the substantial reduction in the overall premium, 'solicitors had undoubtedly been winners this year'.

He added: 'With such a huge reduction in premiums paid one must wonder whether that is sustainable.

Both solicitors and insurers will have to wait and see how things progress over the longer term.'

Sue Allen