A fear of being hit by a massive one-off claim is leading commercial law firms significantly to increase their insurance cover, with a growing proportion of the top practices now purchasing more than £200 million in protection, research to be published this month will reveal.


A survey of the top 100 firms by Liverpool law firm Legal Risk, which received responses from 59 firms, showed that 10% are now buying more than £200 million in cover, compared to 2% last year.



About 20% of firms are purchasing between £150 million and £200 million in cover - up 4% from last year - while a further 19% are buying more than £100 million, representing a 6% increase.



There has also been considerable interest in 'lifeboat cover' to protect partners' residual personal liabilities in limited liability partnerships (LLPs), the survey found. Almost 15% of firms took out a lifeboat policy, while 12% purchased management liability insurance.



Legal Risk partner Frank Maher said: 'Firms are doing a lot of seriously large deals that are well over their indemnity provision. With insurance being relatively cheap, they are thinking that they may as well buy that extra bit.



'Partners in bigger firms are also getting more interested in partner asset protection, not just in terms of insurance but also LLP conversions and limiting liability. They are waiting for the one big claim to come along.'



LLP status has gained further ground, with 52% of respondents already having converted and a further 19% planning to do so in the next 12 months.



Firms are also taking greater control of risk management, according to the survey, with risk managers being replaced by designated partners in some firms. Some 46% of firms placed a single partner in charge of controlling risk last year, compared to just 16% in 2005. The number of firms giving the responsibility to a risk management specialist fell by 4% to 25%, while the number entrusting the role to a manager dropped 17% to 7%.



Mr Maher said: 'A partner understands the firm perhaps better than someone who comes in from outside. There is also an element that lawyers will take a message from other lawyers that they will not take from other people.'



Firms appear to have successfully exploited the competitive insurance market to get the best deal from their current insurers. While 97% of firms stayed with the same insurer last year, two-thirds did not finalise their cover until two weeks before the renewal deadline, with 45% holding out until the last week.



However, one in six firms changed their broker this year. Marsh now holds the number one spot among top-100 firms, the research revealed, with a 37% market share. Alexander Forbes, which was taken over by Lockton during the year, slipped to second place with 23% of the market, followed by Aon with 19%. Firms cited personal relationships, standard of service and the broker's market position as reasons for moving in almost equal measure.



By Rachel Rothwell