Indemnity Insurance: most firms save money - despite doubling of minimum cover - thanks to competitive market

Indemnity insurance premiums dropped by up to one-fifth this year - but some firms involved with The Accident Group (TAG) were turned away by insurers, brokers said this week.


The fall in premiums came despite a doubling of the minimum indemnity cover, with some firms receiving the extra £1 million of cover required free.


The minimum level of insurance rose to £2 million - and £3 million for limited liability partnerships - this year. Changes to the aggregation clause also meant many firms needed to buy 'top-up' layers of cover, because multiple claims stemming from the same risk will be treated as one higher-value claim.


But a competitive market - with more insurers entering the market for the first time - meant most firms saved money, even though many were required to buy additional cover.


Steve Holland, divisional director at broker Alexander Forbes Professions, said: 'The winners have been the firms that have good track records and risk management policies. But there has been an increase in the number of firms caught up in mortgage fraud, which is a result of the slowing of the property market.


'I have seen a number of insurers decline firms involved with TAG. There have also been increased rates [for TAG firms], and personal injury firms are getting an excess on an "each and every claim" basis, which leaves them exposed if they have another TAG-type claim.'


Mike Rendell, founder of broker Rendell & Partners, said: 'Good clients have been getting 20% off premiums, and the extra £1 million of minimum cover for free. But there have been problems for firms that had TAG work - they have seen increases in premiums and many of them have been declined by insurers.'


Jonathan Davies, assistant general manager of St Paul Travelers, said: 'TAG is a long-standing issue that is not yet resolved. Our starting point has been that firms that have been on the TAG panel should stay where they are... I would be surprised if some TAG firms have not gone into the assigned risks pool (ARP).'


Nicholas Gilbert, director at broker Aon's professional risks division, added: 'Premium rates have reduced by up to 20% for both the compulsory £2 million layer and additional top-up cover. This continues the downward trend experienced last year, and brings the rate reductions for law firms in line with those experienced by other professions.'


He added: 'However, it is not yet certain whether this will continue. The impact of hurricanes Katrina and Rita could potentially destabilise the market, causing premium rates to increase in 2006.'


Under Law Society rules, firms may be insured by the ARP for a maximum of 24 months in any five-year period. If a firm cannot obtain cover with a qualifying insurer in the open market by the end of the 24-month period, it must cease practising.