Now that most of the provisions of the recent Solicitors Regulation Authority consultation on professional indemnity insurance have been deferred for further consideration – the possible exception being the headline-grabbing reduction in the compulsory limit (awaiting a decision on introduction by the Legal Services Board at the time of writing) – it is time to tackle your 2014 PII renewal, if indeed you have not already started.
The usual insurance principle that ‘the losses of the few rest on the shoulders of the many’ applies here, but all too often the losses have approached or exceeded the premiums paid by the many.
The result has been that insurance capacity has been squeezed, with several blue chip insurers leaving the market in recent years to be replaced, at least in part, by obscure unrated markets whose often lower premiums have proved to be unsustainable (despite allowing many, generally smaller, practices their only affordable solution).
Fortunately, there are ways of maximising a law firm’s attractiveness to its own and other insurers.
The open market has been in existence since 2000, making this the fifteenth purchasing season (notwithstanding the ability to change renewal date, introduced last year). The overarching message of this article is to make yourselves as insurable as you can by spending as much time as necessary on showing exactly why insurers should want to be your partner. The advice that follows should be helpful in achieving this.
- It is far more likely that leaving your PII renewal until the 11th hour will cause problems, rather than procure you a lower premium. Your future may depend on finding an insurance deal, so do not leave it to chance.
- Decide how you want to shape your renewal campaign. Get an idea of the lie of the land from your broker. And if you are not sure, get a second opinion. Multiple approaches to the same insurer can result in disappointment, so consider establishing briefs with any brokers used.
- Dig out and review the 2013 form. Many of the answers can simply be updated, and you probably have a good idea by now what the form will ask, so you can start compiling some of the answers.
- The proposal form should not include any surprises. Any major changes since the previous form should simply reflect what the insurer knows anyway from your engagement throughout the year with your broker. If possible, you should have met your insurer away from renewal time.
- You know how much you paid last year – there is no reason why you should not start looking into how you can fund the 2014 premium before the exact cost is known. If your chosen insurer requires cleared funds before the renewal date, you can fall at the final hurdle by failing to meet this criterion.
- Make the form legible – you are competing with many other law firms for an underwriter’s attention. Complete the form in draft and, when you are happy with it, either complete it electronically or get the person in the practice with the best handwriting to complete a fair copy. Use capital letters, not cursive script – even if it is copperplate.
- Ensure that the numbers add up. The underwriters do not mind if you round off your income split between activities to whole numbers or calculate it to three decimal places – just as long as it adds up to 100%.
- Claims record(s) from previous insurers should be attached to the form, including any prior practices. The number of years you need to go back varies from one insurer to another. We try to limit it to five years because many firms have changed considerably over that time and older claims do not necessarily reflect recent working practices.
- Please make sure that any supplementary information is included in an order that can be easily assimilated. Number the pages by hand if it might help an underwriter to follow a story.
Be your own best advocate
- If your claims record shows significant closed claims, or any open claims with reserves above your excess, offer an explanation within your supplementary information – a few lines on the circumstances, your thoughts on liability in respect of open matters and any other points where you feel that the hard facts on the claims prints do not truly reflect actuality.
- Importantly, if you have been able to learn from claims, close loopholes, tighten procedures, take up accreditations, introduce new systems or in any other way alleviate the chance of recurrence – please make this very clear in your submission. Underwriters will look for this if your claims record is less than stellar.
- We also like to have a letter from you concisely setting out features about your firm that do not emerge from the answers on the proposal form. Your history and culture, where you find your clients, partners’ specialities, how you market yourselves, how you measure success, your short- and medium-term plans and aspirations, how you interact with your local community – all this can help an underwriter in a face-to-face brokering negotiation to appreciate the good points of a firm and can lead to a reduction in their ‘technical price’.
Finally, a tip for laying the foundation for the 2015 renewal – after the deal is done, do not relax. No matter how early renewal is agreed, in the run-in to renewal date ask all fee-earners if they are aware of any circumstances that might conceivably lead to a claim, and make sure you get an answer from them all one way or the other.
Then disclose to your brokers any matters found to ensure that they are declared in the proper insurance year. If such issues arise post-renewal, you can be sure that there will be difficult questions to answer, and a more tense negotiation next time around.
Every law firm has different features, both positive and adverse, so there is never any guarantee, but if you follow these guidelines, you can make the 2014 renewal as pain-resistant as possible.
Chris Robinson is associate director at Howden Windsor