If you followed the advice given in my equivalent article last July, you may well have had your least troublesome professional indemnity insurance renewal of recent times.
But for many practices it is time to engage again this year. There are some clues to be examined about how the October renewal season might unfold for those practices that opted for 18 months’ cover in 2013, thereby providing the profession’s inaugural April renewal season.
We found that the insurers we deal with at Howden were well and truly engaged in the early part of the calendar year. In some quarters, there was concern that underwriters might be in some kind of hibernation, only emerging bleary-eyed and blinking in the summer sun to start looking at claims statistics before the October renewals. We found those fears to be groundless – and activity levels with our partner insurers were all we could wish them to be.
It was also welcome that 2015 would not be burdened with the uncertainty of goalpost-moving SRA consultations, which helped to delay the start of the 2014 renewal season. Then underwriters had the unenviable job of pricing risks without knowing what cover they would be giving.
Overall, the April renewals seemed to show stable market conditions. We saw no great fluctuation, with corrections in rating being limited to 5-10%, all other things being equal. The majority of the market still renews in October, however, so it is important to keep that in perspective.
There was new capacity in the market last year, which helped in the small firm sector in particular. The use of unrated insurers appears to have diminished further, with their share of annual premium dropping from 12% to 8%. Overall, the pot of money collected by insurers stayed at around £250m – roughly where it was 15 years ago when the open market was introduced.
As stated last year, your renewal mission is to be as insurable as possible. Everything you submit as part of your renewal pack should speak to your desirability as a valued partner of your current insurer, and as a potential client to be coveted by other insurers. If there are unhappy episodes in your recent past, strive to make them virtues by showing: how you were financially prudent enough to survive an errant employee or principal; how your vigilance helped to identify weaknesses in your risk management; and how you invested time, effort and a little money in tightening up procedures after an avoidable claim. One of the last things an underwriter wants is a client who, when they make a mistake, puts a rubber band around the file, gives it to their insurer and forgets about it.
Just as you have an ongoing duty to notify claims and circumstances, you should also keep your broker/insurer apprised of changes in the firm throughout the year. Regular meetings with your broker (and occasionally with your insurer) should help to avoid any surprises on your proposal form. Faits accomplis are rarely rewarded.
Some or all of the following might help you to achieve a good result from this year’s renewal season. After all, you know what perfect planning prevents.
- Think about the shape of this year’s renewal. Were you happy with the 2014 outcome? If not, what could you, your broker, or your insurer have done better? Do you know the lie of the land in the market this year?
- The chances are it will not get cheaper if you leave it until September. There may be some insurers which start to panic that they have not filled their capacity with a couple of weeks to go, but mainstream insurers are more likely to close their books early than throw the doors wide open. Leave ‘lastminutedotcom’ for the family holiday.
- Think about your premium funding. No other class of insurance requires an insurer to take on the credit risk that accompanies distressed run-off cover, and insurers will want to have the premium or at the very least know where it is coming from before irrevocably binding cover. You do not need to finalise a deal to the nearest penny to be able to start enquiries about funding.
- Think about the files you see from other law firms. Are they legible, in order, secure, complete? It would only be human to be scornful of files that fail to meet your own high standards. And then apply this to your renewal submission.
- Are there gaps which could lead to queries in an underwriter’s mind and lead to a premium that errs on the side of caution? Identify any negative points and address them head on. All underwriters will notice them, even at the height of the season – that is their job.
- Please ensure that your work split adds up to 100%. Also, if you declare ‘other work’, underwriters will assume that it is high-risk rather than low-risk, so find a home for it in other categories if you reasonably can, or explain it fully in a covering letter.
- Are all the claims printed out and attached or at least available to your broker? Do not overlook prior practices.
- Include a brief story for any open or large claim. If you have a lot of supplementary information, make it relevant and easy to follow.
- Include a covering letter with a little background – your firm’s history, culture and aspirations; specialities of the principals; how you find, win and keep your clients. Humanise your practice for the underwriter, rather than making it a mere number-crunch for them.
- One final tip. Can you reduce your PII programme exposure by using contingency policies that deflect losses from third party to first party? These are common in conveyancing but what about probate? Renewal can be tricky and time-consuming. With preparation and commitment, you can emerge from the renewal season with a secure and cost-efficient risk transfer mechanism that can be relied upon in less than fair weather.
Chris Robinson is associate director, professional indemnity, at Howden