Thousands of firms are weeks away from being plunged into uncertainty according to research showing an increasing number relying on unrated professional indemnity insurers.
The survey results come weeks before the Solicitors Regulation Authority decides whether to ban unrated insurers from the market after a glut of collapses in recent years.
This year’s Law Society survey of almost 600 firms with up to 25 partners found that 22% had opted for an unrated insurer. That proportion was up from 16% in 2013 and more than double the 9% in 2012.
The issue is most pressing for smaller firms. Overall, 23% of sole practitioners and 25% of 2-4 partner firms used unrated insurers, compared with just 2% of 5-10 partner firms and none of the largest.
A Law Society spokesman said: ‘This increase is perhaps not surprising given the shocks to the PII market last year which had resulted in less capacity being available to firms.’
The regulator is set to decide on policy at its board meeting in May following a consultation with the profession.
A Society spokesman said: ‘If the proposal is implemented, there is a real danger that an already fragile situation will be severely damaged, with the consequences of higher PII premiums and potentially more casualties among small firms.’
The survey suggests that firms are heeding warnings about making background checks on potential insurers. The proportion of firms rating financial stability as the biggest influence on their choice of insurer doubled from last year, to 20%.
But crucially, the majority of smaller firms still see cost as the biggest factor.
The exit of Balva and the decision by XL to reduce its market share from 20% to 2% restricted choice. In total, 76% of firms reapplied to their insurer for a quote, down from 91% in 2012/13.
Almost one in 20 firms entered the extended indemnity period.