There are many factors that determine professional indemnity insurance (PII) premium you pay, and some of these include: claims experience, the firm’s structure, and types of work undertaken.
In the first half of this year the market for PII, and more specifically for solicitors, became challenging, with insurers generally pressing for premium increases. So what matters most to insurers when calculating your (PII) premium, and how can you differentiate yourself?
Claims history is understandably a clear indicator of the risk an insurer faces. Information on claims reports is often limited, so detailed explanations of the circumstances (particularly relating to larger claims or where there is a pattern of similar claims or circumstances) are always beneficial. Insurers want to know: what happened, whether or not other files are likely to be affected by similar issues, what “lessons” you learnt when the file was reviewed, and what measures were introduced to avoid similar claims occurring.
Insurers’ claims reports should always be included, even if you have made no notifications or claims. A history of reported circumstances with zero balances and statuses marked as closed can actually provide some comfort to insurers – and can be seen as evidence that the firm has a procedure for identifying potential problems, and follows robust reporting procedures.
In terms of your firm’s structure, for limited liability firms, the number of Solicitors Regulation Authority (SRA) approved managers determines which insurers are interested in quoting and the method by which you can access them.
Nature of your business
Sole practitioners have sometimes been seen as reasonably high-risk due to the level of individual responsibility, and the need to balance fee-earning activity against managing and running the business.
Even for firms with multiple SRA-approved managers (partners), if you operate in multiple locations and each partner is running an office individually, can you explain how your business supports them in managing the work and preventing mistakes?
The key in both of these scenarios is ensuring your prospective insurer understands how you work, that the support systems are in place, and the nature of your business.
Specialist and boutique firms have grown in number in recent years and can be attractive to insurers because the specialism means expertise can be built up among a wide group. That said, some categories of work, such as commercial or litigation, are very broad and the nature of work undertaken can vary greatly. Proposal forms don’t automatically request specific information in this regard, so provide an addendum including an explanation of the work you do, giving examples if appropriate.
Many firms still provide a range of services, and a well-balanced split in work types can protect firms from the pressures created by market trends – for example, fluctuations in conveyancing work depending on the economic backdrop, house prices, and government legislation. Insurers will have a view on the risks associated with each type of work - it is useful to demonstrate your awareness of the wider issues affecting the sector(s) you work in, and to explain how you are responding to those risks even if they are outside your control.
In contrast to specialism, all 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 outside the scope of a firm’s usual services. Insurers may have questions about whether the firm has sufficient experience to supervise and undertake this work, although there may well be reasons why a proposal form could give the wrong impression. In such situations, additional information to alleviate insurers’ concerns should be provided. If the situation arises because a firm is accommodating an existing client, then a more robust way to manage this risk could be a referral agreement with a fellow practice.
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. The ability to monitor individual caseloads and access shared diary systems can help prevent mistakes, however this isn’t always visible on a proposal form so ensure supplementary information is provided.
Whilst it’s more important than ever – in current market conditions – to provide as much detail on historic issues, your proposal should also be seen as an opportunity to highlight all of the positive features within the firm.
The following are positive signs: changes made to processes to prevent claim recurrence (beyond blaming the individual); examples of actions taken to tackle matters detected by your auditing process; peer review processes; risk awareness training; explaining how MI is used to drive improvements (if at all). They demonstrate “risk maturity” – ownership and management of risk associated with legal work.
The Legal Practice Group team at Marsh JLT Specialty has a wealth of experience in how to present your firm to the insurance market to ensure you receive the best possible terms. Please get in touch with us to discuss your options and specific circumstances in more detail.