The 2013/14 policy year for professional indemnity insurance (PII) abolished the compulsory renewal date. However, recent figures suggest that only 21% of firms switched to longer policy periods on offer.
Renewal time is fast approaching for most practices. The SRA postponed its plan to reduce the minimum level of cover to £500,000. Despite concerns, only 12 firms failed to obtain cover following the closure of the assigned risks pool. However, set against this is the worrying statistic that claims against solicitors were up by 196% in 2014 compared with 2013.
It is, therefore, imperative for firms to present themselves as the best possible risk. This is in order to secure PII cover on good terms with competitive premiums, which will provide them with adequate protection.
Unsurprisingly, being an attractive risk begins with the basics. This applies whether your practice has retained the traditional renewal date or not. First, begin the renewal process early and approach it in an organised, proactive manner. Failing to do so may lead to your practice producing hurried proposal forms with information missing.
Second, this physical presentation of your firm gives insurers an insight into your business practices. Small things matter, and bombarding brokers and insurers with several rushed and incoherent proposal forms will make your firm appear desperate and unprofessional. This is likely to count against you. Instead, using a good broker to ensure that your practice is presented in the best possible light can be worth the broker’s weight in gold.
Failing to appear organised may lead to your practice having to accept cover with an unrated insurer. This will not necessarily be problematic, though you will need to consider whether it will have a negative effect on your ability to take on work. When Balva and Berliner collapsed in 2013, 153 firms were left without insurance cover and were required to spend valuable fee-earning time trying to replace it.
Insurers accept that in a good year, they will often pay out in claims roughly 80% of the premium paid by solicitor policy-holders.
Understandably, insurers want to minimise their exposure. They are therefore attracted to firms which take an active interest in reducing their own exposure to risk. Above all, insurers are interested in professional and well-managed practices.
Risk management protocols are easily implemented. The SRA has already introduced compliance officers for legal practice (COLPs) and finance and administration (COFAs). These, combined with a risk and complaints management system are essential to ensure that insurers look favourably on your practice. However, risk management, compliance and complaints management must be an active and integral part of your business, not merely a box-ticking exercise.
Putting these protocols in place should have the added benefit of giving your practice a better claims history in future. Solicitors’ PII operates on a ‘claims made/claims notified’ basis. Therefore, the better your practice’s claims history looks, the better your practice’s chances of securing competitive cover for future years will be.
That is not to say that insurers will only offer favourable terms if you have a spotless claims history as many firms do not. Many of those firms that do secure favourable terms will use claims histories to their advantage, presenting them positively as something that they have learned from and used to develop their practice for the better.
Insurers have always been interested in certainty. However, the sheer volume of claims made against solicitors has made insuring solicitors’ firms considerably less certain. Of particular concern to insurers is the compulsory six-year run-off period imposed by the SRA’s minimum terms. This creates large numbers of claims for which insurers may not have the benefit of a run-off policy-holder’s excess.
Now more than ever, it is critical that firms ensure that they are presented as being soundly run from a financial point of view. Practices should provide insurers with evidence that they are solvent and have a reliable source of income. Those firms that appear shaky financially may simply convince insurers that they are at the point of collapse. Insurers will be disinclined to provide cover for firms that they will be forced to cover for six years after their demise.
Finally, insurers like to be apprised of any changes to your practice, and will ask firms about them at renewal. Of particular interest to insurers are lateral partner hires, merger plans and changes to your practice’s business structure. If you inform insurers of changes on an ongoing basis, those changes are more likely to be viewed in a positive light. If the changes are merely included on a proposal form, insurers may conclude that you would rather not disclose them and will understandably be suspicious.
Introducing changes to your firm’s business, particularly in respect of risk management, is an extremely worthwhile exercise and if done well should pay dividends. In any event, it is worth the effort. In many instances, making the changes this article proposes should make it easier for your practice to secure cover in future years. It will also be one less thing to worry about in an increasingly competitive legal services sector.
John Bradley is managing partner at London claims resolution solicitors Reynolds Colman Bradley. Alasdair McDowell, a paralegal at the firm, also contributed to this article