Solicitors’ professional indemnity insurance (PII) premiums have shot up by 50% in a handful of cases as early reports suggest that the renewals season is already proving difficult for small law firms.

PII brokers and experts said that some small firms seeking early renewals have already been denied cover, while others have faced vastly increased premiums – even if they are no riskier to insure than in previous years.

However, the Gazette has learnt that insurance giant XL is poised to enter the solicitors’ PII market, in a move that may help to lower premiums. XL has signed a qualifying insurer agreement, allowing it to write solicitors’ PII for 2009/10 if it chooses. A spokeswoman confirmed that XL is ‘considering’ writing solicitors’ PII this year, but declined to comment on the amount of cover that XL might provide, or the size of firm it might choose to insure.

Earlier this month, insurer Hannover Re announced that it will enter the market to write solicitors’ PII for firms with four to 25 partners, exclusively through broker Lockton. As revealed by the Gazette earlier this year, German insurer Allianz will enter the market with up to £10m of cover for firms with four or more partners – although Allianz warned that it is no ‘white knight’ (see [2009] Gazette, 7 May, 1).

Experts believe that premiums will fall if more insurers enter the market.

‘We have heard of a lot more instances of insurers trying to deny cover, some on rather dubious grounds in our view,’ said Frank Maher, partner at Liverpool firm Legal Risk. He said that insurers are looking closely into potential fraud at small firms, and in some cases, alleging that sham partnerships exist before denying cover.

Simon Lovat, divisional director in the UK professional indemnity division at United Insurance Brokers, said that some small firms have seen premiums jump by 50% ‘without any major changes in their profile.’