With deadlines looming to renew professional indemnity insurance, desperate brokers are offering insurers books of hundreds of law firms without any scrutiny of their ability to pay out on claims, an insurer has claimed.
In an interview with the Gazette, Jason Smart, chief executive of indemnity insurer Elite, lifted the lid on the lengths brokers will go to get insurance arranged for firms.
The solicitors’ PII renewal deadline is set to pass at midnight tonight with potentially hundreds of firms still seeking cover. Many will come from the group of 1,300 left without an insurer after they separated from insurers Balva and then Berliner in the past year.
Smart said his firm was approached to take on the book of firms en masse – an approach that was immediately refused. ‘We have offered terms to the better risks but we have been very careful not to be the recipient of a bin full of application that were part of a ludicrous situation.
‘Berliner was not big enough and the premiums were completely untenable. We were very vocal and resistant to being a dumping ground for everybody else’s mistakes.’
Smart said that ‘several’ brokers had tried to push the Berliner book onto his firm, even though it amounted to more than double the £8m Elite was prepared to write in the legal market this year.
‘This all stems down to the broker market – they should be less worried about their 25% commission and more worried about selling a product that has some value,’ he said. ‘I even had a text message from somebody I don’t know asking me to take on a £20m book. I don’t think there would have been any scrutiny had we expressed an interest. The broker should look at the financials of the business and how they will meet liabilities.’
Smart emphasised that his criticism did not apply to all brokers, several of which are showing due diligence in assessing whether a law firm and insurer was a correct match.
Firms that have missed out on securing cover now enter the Extended Indmenity Period, a 30-day period in which a firm can continue to practise and try to obtain qualifying insurance.
Several rated and unrated insurers are believed to be still prepared to accept applications from firms in this situation.
Smart said the grace period during October, when firms can still practise while they search for an insurer, will be ‘incredibly busy’. In some cases firms will have to accept paying premiums up to 15% of their annual fee income as insurers set prices based on risk created by other firms.