The Law Society’s council yesterday voted overwhelmingly in favour of pressuring the Solicitors Regulation Authority to abolish the single renewal date for professional indemnity insurance (PII), in favour of staggered renewals.
Some 55 council members voted in favour of the move, with 14 against and three abstentions.
Chancery Lane submitted a paper to this week’s council meeting inviting council members to support the move, while acknowledging that it would not resolve every problem. The SRA, which administers PII rules, is already considering potential reform.
Chancery Lane claims that the advantages of staggered renewals outweigh the benefits of a single renewal date. It predicts that staggered renewals would probably lead to lower premiums, more flexibility and choice for law firms, and closer alignment between premiums and risk.
The Law Society also cites a membership survey in July, which found that 71% of solicitors supported the switch.
However, it notes ‘reluctance’ on the part of the SRA to make the change because of logistical difficulties and cost.
Chancery Lane took advice from consultant actuaries Lane Clark & Peacock, which examined the issue and recommended a staggered policy renewal approach. The SRA sought its own advice from insurance broker Marsh, which recommended a single renewal date.
Lane Clark & Peacock said that the single renewal date ‘exacerbates the insurance market cycle’, with the benefits of a soft market outweighed by the troubles of a hard market. It said that staggered renewals would give insurance companies time to consider risks more carefully, help promote competition between insurers, encourage better provision of information by insurers and brokers, and help solicitors get the best-available prices for cover.
However, broker Marsh noted that soft markets have outnumbered hard markets in the past. It suggested that insurers are well prepared for renewals, and larger law firms are happy with the single renewal date, while a move to staggered renewals would increase the scheme’s complexity.
The broker also warned that firms would come under greater scrutiny from insurers and might have to pay more for their PII with staggered renewals.