Are you considered a good risk?

06 January 2016

Seldom are any two law firms the same. There are many variables that can alter the profile of a solicitors’ practice, such as the number of partners, number of staff, the type of work they carry-out, case management systems used, whether the firms operates a traditional partnership or is an Alternative Business Structure (ABS), or whether they undertake niche ‘boutique’ work and many other factors. 

Given all of these variables, what really matters most to insurers when they are considering offering professional indemnity insurance to your firm? 

Solicitors are now free to choose a Professional Indemnity Insurance (PII) renewal date away from the 1st October, which has lead to an increased number of firms falling due for renewal on or around 1st of April, if this applies to your firm then now is the perfect time to consider the way that you present your risk to insurers. 

Insurers that provide PII to law firms tend to have a preference on the size of firm that they wish to insure, this being defined in the first instance by the number of SRA-approved managers (Partners) a practice has. Generally, insurers recognise that the more partners a practice has, the greater the level of supervision will be for staff. Ideally there will be a Partner heading up each category of work the firm carries out, these being specialists in that particular area of law.

Sole practitioners have always been seen as reasonably high risk due to the responsibility that is placed on one individual to oversee the management and running of the business, which can be especially difficult during a leave of absence. Sole practitioners also come in many different guises, from literally one person working at home with no support at all, to firms with large revenues and numerous fee earners and paralegals supporting them. The key here is making sure your prospective insurer understands the nature of the business.

2-10 Partner firms usually give insurers more confidence. They often represent increased supervision, specialism and support throughout the firm, as well as being able to provide cover during holidays or absence. Firms are advised to have a resident partner to supervise in each branch office to avoid concerns over a lack of supervision. It is worth noting that a 3 partner firm with 3 offices each conducting a different type of work could well be viewed as 3 separate firms when insurers come to assess the risk. 

Many firms these days provide a range of services to clients such as conveyancing, matrimonial and wills, trusts & probate. A nicely balanced split of various work types is always well received by insurers as it will protect a law firm from the pressures created by trends in the market, such as conveyancing work which can fluctuate heavily depending on the economic backdrop, house prices and government legislation.

However, firms should be aware of' dabbling' when it comes to the work they take on. This is a term used by insurers when they feel work is being undertaken in an area of law that perhaps doesn't come naturally to the firm, which could lead to errors being made. Often firms will take on work outside their usual scope for existing clients, when a more robust way to manage this risk would be to have a referral arrangement in place with a fellow practice that is used to such work.

Claims history is understandably a clear gauge of the risk exposure an insurer faces. Ideally no reported claims in the past six years is desirable, however where there are notifications reported these would hopefully have a zero balance with the status marked as closed. Notifications of this nature can actually provide some comfort that the firm follows reporting procedures and takes complaints seriously. Any paid claims of value should accompanied with a full explanation of the circumstances that led to the claim, and backed up with any lessons learned and measures that are now in place to try and avoid future claims of a similar nature.

Accreditations such as Lexcel and CQS demonstrate that a firm adheres to good risk management. They certainly make no guarantee that claims will not arise, but especially in the case of Lexcel the chances of errors occurring should be significantly reduced. 

Strong case management systems that allow all types of work to be monitored are an advantage, especially for supervising high-volume work such as Personal Injury or Conveyancing files. This should be highlighted with any presentation made to insurers in the lead up to your renewal. The ability to monitor a fee earner’s piece of work from start to finish allows partners to keep track of proceedings and assists with file reviews. This reassurance gives a greater degree of comfort to insurers. 

JLT’s team has a wealth of experience in how to best present your firm to the insurance market to make sure you receive the best possible terms. Should you wish to discuss your options in more detail, please don’t hesitate to get in touch.

contact Joel Harding