Solicitors’ professional indemnity insurance (PII) rates will increase this year because insurance companies are not making ‘adequate’ returns, leading insurer Travelers has warned.

Conveyancing firms – especially those with a bias towards residential property – will suffer the biggest hike, Jon Davies, assistant general manager at Travelers Professional Risks, said last week.

Speaking at Travelers’ annual On Risk conference in London, Davies told delegates: ‘Rates have to increase… insurance companies are not making adequate returns in this market. If claims increase there will either be a decrease in insurers’ margins or an increase in premiums – and because there is no margin left for insurers, rates will go up.’

According to Davies, the PII market has become ‘increasingly volatile’, especially with regard to property-related claims. ‘There is an increasing trend to pin claims on lawyers rather than valuers,’ he said. ‘Cash-strapped clients can become challenging clients very quickly.’

Ian Bryant, claims manager at Travelers Professional Risks department, said he had not yet seen any claims that could be classified as sub prime-related.

However, Sandra Neilson-Moore, European practice leader for law firms’ professional indemnity at broker Marsh, said the majority of sub prime-related claims against law firms in the US had tended to arise from contract drafting errors by those firms.

She also warned that litigious US clients who had bought legal services from UK law firms could pose a problem, but said: ‘I think UK solicitors will come out of the crisis fairly well.’

According to Travelers – which has a 14% share of the legal PII market – premiums collected by insurance companies fell from £251 million in 2003 to £206 million in 2007. Davies warned that some insurers could be tempted to pull out of the market altogether.