Your Solicitors' professional indemnity insurance renewal

09 February 2017

If your firm renews its solicitor’s professional indemnity (PI) insurance during the first few months of the year, you should by now be well on your way to preparing and returning your renewal submission to your broker. You would have engaged with all of your internal stakeholders around your declaration and should definitely be focused on the implications of the new Insurance Act, which came into force in August 2016. 

Your broker will have no doubt informed you of the relevant changes to the Solicitors Regulation Authority (SRA) Minimum Terms and Conditions in the regard.
In my view, the main priority every year for all those responsible for arranging their firms PI insurance, is advanced planning. Avoiding ‘renewal panic’ and ensuring your firm stands out to insurers rather than being lumped together as “just another firm” is crucial. The more an insurer understands about your firm’s activities, your risk controls, procedures, your claims record and your plans for the years ahead the better. 

A good broker will have devised and agreed a plan with you in advance of the renewal period, clearly laying out a strategy and agreeing desired outcomes. A good and focused broker will always be wearing its clients shoes and will be driven to secure the best result possible time and again. 

Regular contact should be made with your broker during this renewal period as monitoring process of the negotiations with insurers is important. Sticking to a pre agreed timetable is helpful of course and will assist all parties during this time. In my experience no one likes surprises as far as their PI is concerned and regular communication should help to avoid this. Don’t forget, your broker is your “eyes and ears” in the insurance market and will be talking to you about any new insurer entrants to the market, the existing insurer options and whether they are a good long term fit for your firm, factors could be specifically around pricing, attitude towards claims management and/or their long term commitment to the profession. 

The emphasis of this discussion should be on what the insurer can do for you – a question like, “what risk management advice/guidance do they offer and how will they be able to help my firm in the future,” is key.

Some insurers are definitely more forthcoming than others in this respect. You should be made aware of this.

Frequently asked questions 

My firm has experienced deteriorating claims during the last twelve months – should we expect a more limited choice of insurers this year and/or a hike in premium? 

Yes and no – it goes without saying that the type, frequency and severity of your claims will have an impact. Understanding whether it is a “one off” or a systemic issue is extremely important. Your broker should be working closely with you gathering evidence about what the firm has done to rectify the underlying causes of claims to stem further incidents – again this is all about your broker understanding your culture and the firms approach to the management of risk and in particular the systems and procedures in place to avoid recurrence. Your broker is well placed to articulate your firms true risk profile to insurers. It is important that insurers perception of your risk does not become a reality and this view reflected in levels of premium or punitive is policy excess structures. 

Creating a competitive playing field for your business should always be one of the key drives of your renewal strategy. Your broker should be tasked with this at every renewal. Continuity of insurer is important but what if your current insurer reacts adversely to your claims experience. Planning in advance to mitigate this is a continual process. Having just one insurer option will generally mean one thing; premium increases if your claims position deteriorates. Having other insurers looking to secure your business will undoubtedly help manage this. 

Across the profession as a whole, we have seen a reducing number of claims notifications in recent years but adversely an increase in the actual value of claims. Interestingly, some insurers have seen a deteriorating claims experience from earlier policy years. The impact of fraud losses has also been a significant factor in the last couple of years and this may continue to have an impact on premiums during 2017. 

Is it really always about price? 

It should never only be about the price, we do need and more importantly must have a blend of everything but ultimately if you do not have to pay more, then why would you. 

There was no apparent or obvious pressure on rates during 2016. There was more than enough insurer capacity and this alone helped drive stability and for many firms a very competitive environment. Many firms secured significant reductions in premium at the 2016 renewal. Some well in excess of 20% according to many commentators. 

We do however predict more informed underwriting decisions to be made over time, given the work carried out by both the SRA and insurers examining claims patterns across the whole profession. Will this impact your firm’s 2017 renewal?

Probably not. Most experienced insurers have built their own sophisticated models to assist with their underwriting decisions and will therefore react to their own particular experience. 

There are a number of risk assessment tools we use at JLT to determine appropriate and fair premium levels. Benchmarking is one such tool. We assist our clients drawing upon the experience we have in both our UK and international client base to extract meaningful data. This peer group analysis is really useful data and whilst not providing a definitive answer as to the exact pricing you should procure, it does act as a guide as to what your peers are paying depending on their risk profile and risk appetite. 

The price you pay comes down to many factors including your broker’s personality and relationships with insurers. Importantly, your broker needs to know what to actually ask for. This comes with experience and supporting data. An important reminder here; your broker is acting on your behalf not the insurer(s).

There is no room for a passive approach to the renewal negotiation. PI insurance is one of the biggest single overheads to your firm, and so our negotiations are never approached passively.

Why have firms changed their renewal date?- Are there any real advantages? 

Renewal dates have continued to diversify away from the traditional 1st October watershed gradually bringing solicitors firms more in line with other professional services firms. From the insurers perspective, it has simply called for a staffing shift and of course in the long run will be easier to manage. In all honesty, the impact has till now been fairly neutral in terms of cost for the majority of firms whether they be large or small. It is estimated that around 30% - 40% of the professions now renews away from October.

Whether to change renewal date, or not, is very much down to personal preference, with some firms seeking to align their PI renewal date with their financial year end/or other insurances. However, some find that to do both is simply too much to manage properly at the same time although most firms have coped very well. 

Any noticeable price impact may depend on the size and type of your firm. If you are a firm that operates in ‘higher risk’ activities, it might be best to opt for a non-October renewal date so the insurers have more quality time to properly understand your firm, its culture and risk profile. As mentioned though, with the proper planning this should not really be a factor and renewing at any time of the year should be absolutely fine.

Most insurers are prepared to offer policy periods up to 18 months. This might be something to seriously consider if locking into a preferential rate is your desired outcome and you are seeking certainty.

What does 2017 hold for firms? Do we foresee a hardening of the solicitors PI insurance market anytime soon or will it be business as usual?

In 2017, we predict rate stability i.e. continued soft trading conditions mainly driven by an abundance of insurer capacity and a continuing improvement in the claims environment.

There will definitely be more packaged insurer and broker products that are suitable for a forever changing profession. The words on everyone’s lips is “cyber risk” so expect more scrutiny on this subject. We have seen a huge increase in cyber related incidents and a general increase in awareness of these risks at a senior level is evident. Response plans to hacking activity have been devised and awareness training has been a focus for many firms. Your broker will no doubt be offering guidance as to what you are (and are not) covered for under your existing PI insurance, so you can make informed decisions around this increasing risk. All embracing insurance cover is available for cyber related risks and is an option worthy of investigation.

We continue to feel a slight frustration that the majority of larger city, national and international firms have a limited choice of primary insurer. Commercial insurance has been in play for 16 years now and yet the so called ‘top 100’ firms still only have around five maybe six insurers willing to offer terms supported by a strong service proposition. The majority of firms falling into this category are now insured with Aviva, Libra, Travelers or QBE. All very good propositions for the larger firm but more competition would be good and healthy for these firms. A number of insurers have expressed an appetite to offer terms to the larger firm but very few have actually stepped up. With the benign trading conditions, maybe we will see more hunger this year. We will have to wait and see. The larger firms, in particular, understandably place genuine value on the continuity of insurer, which we applaud but surely not at any cost. Introducing more competition will certainly ensure a balance to the pricing and keep the incumbents on their toes.

For the smaller firms, there is definitely a greater choice of A-rated insurers for some time and this will no doubt lead to another competitive year. A number of smaller firms will be offered an early renewal and this should be considered seriously. A judgement needs to be made if the offer is reasonable given your firms circumstances and risk profile. Your broker should be asked for honest feedback and advice in this regard.

What are our priorities as a broker? 

  • It is not just about you completing a proposal form, the personal element is essential. Truly understanding a clients risk profile and needs is vital. Our main priorities are: 
  • Planning, planning, planning – if this is not done properly from the very outset and subsequently project managed correctly by your broker another risk has been introduced. Your broker will not secure the best deal unless the strategy and plan is agreed with you well in advance. 
  • Fully understanding your own strategy and goals- We understand what your desired outcome is and agree with you on this at the outset. This allows us to put you in control of the negotiation rather than allowing insurers to take over and dictate the pace and terms. 
  • The difference of having an ‘active’ broker on your side is palpable. Proactivity, Energy, Passion, Understanding and a hunger to succeed for our clients is of paramount importance to us. 

For further information, please contact Martin Ellis Head of Legal Practices Group on +44 (0) 20 7528 4704 or email martin_ellis@jltgroup.com