The last few years have seen a continuing trend of solicitors taking the entrepreneurial step of starting their own practices. This was perhaps initially driven by firms losing work, and therefore fee-earning staff, as the recession bit post-2008. Recent regulatory changes and the emergence of Alternative Business Structures (ABS) have also created further momentum and incentive for people to ‘go it alone’. Coming full circle, with the economy now looking more positive, many solicitors who have considered working for themselves now seem to be taking the opportunity. Interestingly, most new proposal forms we have seen recently have come from those setting up in niche areas such as Intellectual Property or Corporate Recovery.
The most important item on the agenda when thoughts start to form around a new legal practice is risk; the risk of failure, either financial or reputational, the risk of having to go out and win new clients, the risk of managing compliance & regulation, or simply the risk of being ‘on your own’ without the comfort of a large administrative infrastructure and brand to rely on. All of these require careful consideration, as well as another key element of managing risk – Professional Indemnity Insurance (PII) – which a firm must obtain from the Solicitors Regulation Authority (SRA) in order to gain authorisation to trade Due to an apparent ever-changing insurance marketplace, there has been a perception among many that cover is unobtainable for start-up practices. However, experience shows that much can be achieved by finding out which insurers do have an appetite for new firms and submitting a robust proposal that accurately reflects your experience and ambitions.
So, what does a potential insurer look for when considering a new legal business?
- A neatly and accurately completed proposal form. The same tips apply here as for established firms
- A robust business plan which outlines financial projections, explains the potential opportunity and how your ambitions will be achieved over the first 3 years (as a minimum). Within this, you should also outline the experience of any staff working for the firm and how you will manage regulatory matters and mitigate risk.
- Copy CV’s for all the proposed principals (Partners, Members or Directors) in the new firm.
As you might expect, an insurer's principal concerns regarding a new practice will be the possibility of costly claims occurring and the ongoing financial viability of the business. Therefore, it is imperative that, wherever you can you show how you intend to mitigate risk and give an insurer a reason to quote competitively for your business.
It is also important to question any brokers you intend to submit information to about their experience of dealing with Solicitors’ PII, their approach to service, which insurers they place business with and how they will meet your needs throughout your relationship with them. Don’t forget, there is a wealth of information available from the SRA and Law Society including a PII Buyers’ Guide.
Since October 2013, JLT Specialty has arranged Professional Indemnity Insurance for 104 start-up legal practices, of all sizes and working in a variety of areas. We currently estimate that the SRA authorised circa 370 brand new legal firms in the same period.
If you require advice on the risk management and insurance elements of forming a new firm, our specialist Solicitors' team would be delighted to talk to you.