The jury is still out on whether the open market gives solicitors a better deal on indemnity.

But it could cut down risk, writes Jonathan Davies

The insurance industry will soon be scrumming down for the fifth season of the professional indemnity open market.

For some of us, the summer is the focus of our working year as we review and price thousands of firms in a short space of time.

And the profession's interest in the subject is not abating.

Everyone still has a view on how it should operate, how much they should pay and who should pay the most.

There are still strong feelings about why the Solicitors Indemnity Fund (SIF) ended the way it did - but is the open market faring any better?

Are qualifying insurers applying appropriate and fairly distributed premiums? Are we securing adequate reinsurance protections? And does risk management now really make a difference?

Nearly five years in, the open market is getting to grips with an appropriate allocation of premiums across the profession.

The claims experience of law firms remains a good indicator of the risk they present.

But it has to be treated with caution.

Firms may have been lucky or unlucky.

Skilled professional indemnity insurers will be keen to find out as much as they can about a firm.

So if a firm has got a good story to tell, it should make sure that it tells that story.

Although each insurer's attitude may be influenced by the performance of their book of business, there is a lot we can do to achieve an objective and accurate allocation of premium across the profession.

Of course, there is a strong element of self-interest in this.

In a competitive market, it is the quality of each insurer's risk selection that will determine its success or failure.

Some insurers have, of course, already come and gone; others will no doubt follow.

It impossible for the insurance market to please everyone.

If each firm pays only what it considers to be a fair premium, the total will not be enough.

The difference will be subsidised from the insurers' own balance sheets.

And that is what happened in 2000 and 2001.

Time will tell, as the indemnity years develop, just how accurate the current pricing is.

But if it is to fare any better than the SIF, the open market needs to do more than just reallocate the cost of professional indemnity claims against the profession.

If the profession pays less than it would to a mutual, but as a result insurers gradually pull out, then the open market will not be a true success.

The real measure of success is whether the structure actually leads to a reduction in professional indemnity claims against the profession.

That's when everyone wins - the profession, the insurers, the Law Society, the public and the administration of justice.

Insurers have a huge bank of knowledge about where claims come from.

With a bit of applied thought, that knowledge can be turned in to quality risk management advice.

Stopping claims in the first place is preferable to pricing to pay them or ensuring a cost-efficient process for handling and defending them.

As insurers, we spend as much time as we can advising our clients where claims come from and what to do to avoid them.

But it is not just down to the qualifying insurers.

The profession as a whole has a responsibility to take professional negligence claims seriously.

Effective insurers are getting to grips with the allocation of premiums.

But there is no overall allocation of premiums that will satisfy the profession as a whole.

Ultimately, for the profession to pay what it wants to pay, the level of claims must come down.

And the only way to achieve that is to forge a partnership between practitioners and insurers, sharing knowledge and controlling risk.

Jonathan Davies is assistant general manager, financial and professional services, at the St Paul