Some practices face a scramble to find insurance cover
My mother, a proud Glaswegian, told me about the annual tradition of the Glasgow Fair.
Each August, the entire city, en masse, would down tools and head for exotic seaside resorts such as Crail or Largs. Sadly, that tradition appears to have all but disappeared, but it does feel like the legal profession has taken on the mantle.
Chancery Lane is empty. There’s no queue for the bar at the Knight’s Templar and I haven’t seen a tube carriaPge so empty since someone was sick all over it after a heavy night on the sauce. But for those lucky enough to be on holiday, there’s a nasty surprise waiting when they come home: professional indemnity insurance – or rather a lack of it.
The Gazette today reveals that PII provider XL is pulling out of the market for 1-3 partner firms, with AIG reportedly also backing away from the legal market. These are big players, with nearly 25% of the market in 2012 and a strong record of working with smaller firms.
If you’re a small firm, there’s every chance you’ll have to find a new insurer and you won’t have long to do it. Let’s not blame the insurers in this (first time I’ve said that in a while). They provide cover on the basis of risk, and right now law firms are a risky business.
From the collapse of the high-profile Cobbetts and Blakemores to doomsday predictions from the regulator, there are plenty of reasons out there to convince insurers to steer clear. The trouble is, firms can’t escape this vicious circle. The more that go under, the more nervous lenders and insurers get. The more nervous they get, the higher the interest rates and premiums (if they’re offered at all) and the more financial pressure firms will be under.
Inevitably, some firms will be forced to seek out the cheapest cover with unrated insurers. The Law Society is right to urge firms not to take this route, but for some there is no other choice. Few managing partners will fail to grasp the consequences of insuring with another Balva or Lemma, but many will opt to hold their nose and take the plunge.
In the long term, the SRA really needs to look again at the scope of compulsory cover required by firms: as Frank Maher, partner at Legal Risk and an authority on the subject, has said, a large sector of the profession is now at risk of being forced out of practice by the gold plating of the minimum terms and conditions. Times have changed and the rules should shift with them.
In the short term, however, hundreds of firms need an insurer and they need to find it quickly. The next month and a bit will be an unseemly and potentially brutal scramble. Some will inevitably not make it. Some will opt for the equivalent of the back-of-a-lorry option. Either way, that holiday is already starting to feel like a long time ago isn’t it?
John Hyde is a Gazette reporter