With the recent news of Elite Insurance withdrawing from the Solicitors Professional Indemnity Insurance (PII) market many firms may be wondering what the impact of this may be for their upcoming renewal. Yes, there will be one fewer player in the PII market however this shouldn't affect capacity in the short term and indeed may create a competitive market place as insurers look to attract firms, however there are many other factors and trends affecting rates.
2015 was the year of stability for solicitors PII
The solicitors' professional indemnity market in 2015 was an unusual one in that there was, for once, plenty of capacity. The smaller firms were perhaps most affected by insurers entering and leaving the market whilst, for the 5+ partners bracket and larger firms, insurers sought to protect their books by offering early and attractive renewal deals.
On the challenging issue of cost there was a tiny increase in rates but prices are now manageable and companies are finding it easier to stay with existing providers and 'do a deal and forget about it'. Rates for higher risk firms with a significant percentage of conveyancing work continue to fall year on year in the wake of the 2008 crash.
Future risks may expose some of the grey areas in solicitors' PII. For instance, more and more firms are buying stand-alone cyber cover which can overlap with PII in the case of some third party exposures and client account frauds. But PII will not cover clients for first party costs in losing client data or for any loss of online trading. Care is needed in examining wordings too for instance PII cover for losses when working on sensitive deals is not designed with cyber in mind and this may result in some ambiguity.
Fraud is a persistent concern for insurers. One leading provider is currently considering a legal challenge against a major financial institution, where one of its branches was found to be considerably over-represented in fraud claim submissions. Companies are becoming more aware of so-called 'Friday afternoon frauds' when most money is in client accounts.
Larger firms tend to have a more sophisticated approach to PII and, because they choose to spend more time with their broker explaining their risks, they are better represented with insurers. Many view PII as an integral part of their overall insurance programme, although senior partners tend to give greater priority to PII because they appreciate that failure to pay out on a major claim could bankrupt the firm.
It's fairly certain that renewal dates will continue to diversify away from the old October 1 watershed, bringing solicitors more in line with the general PI market. That will call for a staffing shift in the insurance industry but in the long run will be easier to manage.
Increases in property values will also impact on trusts and probate claims and there is likely to be a surge in matrimonial claims on the back of recent pension reforms with divorce agreement wordings needing to be amended to take into account lump sum pension pay outs.
While the number of claims fell in 2015 we have seen an increase in the value of claims together with a deteriorating experience in earlier years. The impact of fraud losses is also a significant factor over the last couple of years. The impact of this could be that once insurers have had a chance to analyse the change in claims information, it may lead them to conclude that they need to increase rates.
The later one leaves their renewal the more likely they are to see rate increases. So don't leave renewal until the last minute and make sure you engage your broker as early as possible.
At JLT our approach is competitive and successful. We have a dedicated team of over 25 solicitors' PII experts and only work only with A rated insurers.