Market conditions, the Summer and beyond

since I wrote to you in the winter edition of sOLO, we have been through another ‘solicitors’ season’ with many law firms renewing their Professional Indemnity insurance in March and april. In this article, I will be sharing some key insights from Lockton’s experience over the past few months and, for those renewing later in the year, providing some guidance on how to best prepare.

MaRKet cOnDItIOns Across the profession, hardening insurance market conditions persisted during the spring renewal period, with rates continuing to rise. There are many factors that contribute to a shift in the insurance market cycle, with the largest being claims activity. While we have not seen a dramatic increase in the frequency of losses being experienced, there continues to be an upward trend in the severity of claims.

With property values continuing to rise and commercial transactions growing in value, it can prove incredibly costly for firms when something goes wrong, particularly when factoring in the cost of litigation.

According to our data, approximately two thirds of the profession are not experiencing claims, but the third that are experiencing claims are exceeding the total premium collected by the insurers, hence the need for change.

In addition to claims activity, economic uncertainty, SRA’s consultation, ‘silent cyber’ (potential cyber exposures contained within traditional property and liability insurance policies), the closure of SIF, and the SDLT holiday are all contributing factors to rising claims. Covid-19 and Brexit have also played their part.

Despite all of the warnings, the spring renewal period was late. A significant proportion of the profession simply did not get their presentations into their broking representative in adequate time. This may have had an impact on the end result, particularly as rates typically got worse.

As in the October renewal season, insurers continued to make extensive information requests from firms. As a minimum, underwriters expected presentations to include a proposal form and insurer claim summaries that were legible and recently dated, along with a completed Covid-related questionnaire. If there were claims on the record or open notifications, a narrative was expected to be included within the presentation. If additional layers were purchased above the compulsory primary limit, even more information may have been required.

STATISTICS The positive news for sole practitioners is that of the firms renewing through Lockton in the spring, the larger increases fell elsewhere.

The average primary rate increase across our portfolio was 26.8%. The largest increases were seen by six-ten partner firms (38%) and the lowest by sole practitioners (24%).

66% of clients have been claim payment-free in the last six years, down from 69.1% from October, but up from 58.8% in April 2020. This rose to 85.5% if no conveyance work was undertaken within the practice – very close to the 86% reported in October and the 85.3% in April 2020. The best performing firms from a claims perspective were smaller firms, 88.4% of sole practitioners have not had a claim payment in the last six years. This is down from 89.9% for those that renewed in October and 94.7% in April 2020. For all categories above six partners, each segment is performing below the average, to the extent that, in many cases, two thirds or more practices have experienced a claim payment in the last six years.

We are incredibly proud that our client retention rate remains extremely strong – potentially market leading – with more than 97% of our clients continuing to select Lockton as their chosen representative. In addition, despite our extensive insurer market access, continuity of insurer remains a vitally important consideration for practices, as only 4.77% moved insurers – down from 7% in October and 6.85% in April 2020. This could be due in part to reduced competition. Nonetheless, we are acutely aware that some clients decided to remain with their incumbent insurers, despite us presenting a more competitive alternative.

the sUMMeR anD beyOnD So, that’s what we saw in the spring. Our advice for those firms renewing later this year?

staRt eaRLy – staRt nOW. If you renew on or around 1 October, you should be engaging with your broker now and compiling the necessary information required by insurers. The more time you can allow your broker to liaise with insurers the better, but it is particularly important if you are not happy with what comes back, as you will need time to react. This is the perfect opportunity to provide a covering letter supporting your application and the following are areas I would suggest elaborating on:

• Your business resilience plan • Governance and supervision (if you employ staff) • Associate wellbeing • Succession plan • Your client base and how you source work • Risk management and regulation • IT and cyber exposures

We would advise looking at all the information about your practice and your fee earners. This includes your website, the Law Society listing and any reviews about your practice. Prudent underwriters will do this. Check that your website is a true reflection of your firm and the work that you are doing. If you are promoting practice areas in which you do not have expertise, this may be off-putting to insurers. Look at reviews online and respond to them appropriately.

It is also essential to ensure that you cover your markets. Less than 5% of firms changed insurer during the spring renewal process, but we would still suggest you benchmark your renewal terms, at the very least to give you comfort that they are competitive.

In a challenging marketplace, careful selection of your insurance representative is crucial. A specialist broker should be able to demonstrate that they have comprehensive and, most importantly, direct access to the active market. Vitally, they should also be able to articulate their claims proposition accurately. While nobody wants to experience claims, you will need to make sure that the team servicing you has the appropriate expertise and infrastructure to support you in your hour of need.

If you are a current client of Lockton, I hope you are happy with our offering and would be comfortable recommending us to other firms. If you are not a current Lockton client and would like us to assist, please contact me or any other member of the team and we will happily approach insurers for you.

I hope that we enjoy a return to ‘normal’ soon and look forward to seeing you at the conference later in the year.

Very best wishes. Danny seaman Lockton Solicitors danny.seaman@uk.lockton.com / 020 7933 2655 solicitors@uk.lockton.com / 0330 123 3870