Managing your Professional Indemnity Insurance

It is fair to say law firms have had a difficult time in the last three years renewing their Professional Indemnity Insurance (PII). A firm mentioned to me back in October that in the last three years they have had an accumulative increase of 63%. They had not gone through any specific change during that period. This was just a result of general rate increases from one year to the next. This example is not unusual, particularly if a firm practices in high risk areas of law.

What are the reasons for such increases?

During the “soft market” years (an extremely competitive cycle), premiums collected by insurers were not sufficient to pay for claims during those policy years.

A PII policy is written on a “claims made” basis and in its very nature there is a long tail to claims which results in claims being made say in 2014 but not being finalised until some 4 or 5 years later. The basis of insurers making profit rests on the premise that they have sufficient funds to pay for claims and operating costs. If this isn’t the case something eventually gives. The PII market as a whole, particularly after the Grenfell tragedy, resulted in many insurers cutting back on risks they were willing to write with some insurers completely withdrawing from the PII market. This eventually led to a lack of competition which escalated further during the Covid 19 pandemic as insurers became even more wary of certain risks and the effects the pandemic would have on the economy and how firms had managed remote working and increases in work-loads.

What can Firms do to manage PII premiums?

The increase example given was not as a result of a significant change to the firm during that period such as increased work or a deteriorating claims record. Firms who have experienced such changes are likely to have had larger increases! A firm’s claims experience is a huge driver on their PII premiums, if a firm shows a poor claims history, rates will be far higher and reduces a firm’s ability to obtain alternative terms. A law firm should demonstrate why their firm stands out, if they adopt strict risk management procedures and have invested in new case management systems and IT security/software in recent years, tell your insurer and explain the benefits this has had to your firm. Explain in detail how you have managed your business and remote working during the pandemic. If you have been unfortunate to have had a claim explain how it went wrong and what the firm has implemented since to avoid a similar claim from occurring. Underwriters look for reassurance.

Speak to your Insurance Broker at an early stage of the renewal process. Find out whether there is a potential issue with your risk (i.e. a recent claim) which requires more time and understanding. Engage with your Broker to assist them with putting your risk in the best possible light to both your current insurer and any potential alternative insurers.

What is the outlook for 2022?

We will have more idea after the April 2022 season but firms must prepare on the basis of what it has been like in recent years. We do not see any new insurer(s) coming in to the market at this time and existing insurers are still likely to be cautious on which risks they will be willing to write. At some point competition will return to the PII market but given the changing working environment, uncertain times and the ever increasing claims costs I cannot see we will get back to the soft market of the middle teens for some time.

If you have any concerns regarding professional indemnity please do not hesitate to contact TLO Risk Services for guidance.

James Brindley

Account Executive TLO Risk Services Limited, 10 Tenby Street Birmingham B1 3AJ

DX712083 Birmingham 29

Tel: 0121 212 9090 Fax: 020 7183 4926 Mobile: 07375 508 131 Email: james.brindley@tlorisk.com