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Law Society annual professional indemnity insurance survey confirms calm 2014 renewal

Posted: 16 April 2015

Premiums remain flat but renewal process continues to be unwieldy

Competition from rated insurers has reduced small law firms' reliance on unrated insurers, leading to a relatively trouble-free professional indemnity insurance (PII) renewal, a Law Society survey has revealed.

The Law Society's annual survey of solicitors' experiences of PII renewal confirms that, despite uncertainties about possible regulatory changes, this year's PII renewal went smoothly for the vast majority of firms.

The survey shows:

  • Premium levels have largely remained flat.
  • There was more PII capacity this year as a result of new rated insurers entering the market.
  • The traditionally under-served small firms sector in particular benefitted from the increase in the number of rated insurers, reducing reliance on unrated insurers.
  • The unrated insurers' market share fell by six percentage points to 17 per cent of policies sold.
  • Smaller firms were more likely to say that the insurer being rated - rather than cost of policy - had the biggest influence on their purchasing decision, reflecting the Law Society's regular reminders of the risks historically associated with unrated insurers.
  • Many firms also heeded the Law Society's advice not to delay their renewal preparations.
  • Nearly a third of firms agreed new policies throughout June, July and August. A half did so in September.
  • Only a very small percentage of firms reported entering the Extended Indemnity Period.

This year's findings are in sharp contrast with those of last year, when many small firms reported struggling to renew their policies following the sudden collapse of the unrated insurer, Balva and the reduction in the number of policies offered by XL.With the closure of the Assigned Risks Pool in 2013, 287 firms entered the EIP, according to the SRA's statistics. This year, the number was down to 39. The SRA reported that only two firms did not appear to have renewed their policy after 90 days.

As expected, take-up of variable renewal date policies increased this year. Nineteen per cent of surveyed firms reported having taken out a policy outside the traditional 12-month duration. Although October still remains the most common month for renewal, the start dates for the next renewals are expected to occur on an almost monthly basis going forward.

Despite the increase in capacity, around a fifth of firms reported finding the renewal process difficult. The most common reason given was that it was time consuming. Half of all firms spent up to a month between starting preparing proposal forms and agreeing to take out a policy. Over 70 per cent of firms reported renewing with their previous insurer, which tends to be less burdensome than seeking new quotes.

Half of firms reported having used at least one of the Law Society's support services in their PII renewal preparations. Smaller firms in particular found these services helpful.

Law Society president Andrew Caplen said: 'I am pleased that the survey found high levels of satisfaction with the help and support the Society offers the profession through its PII website guidance, Professional Update news and reminders and the Practice Advice Service.

'Many firms continue to find the renewal process difficult and time consuming. The Society is considering what steps might be taken to try to reduce the administrative burden on firms renewing their PII policy.'

See the Law Society's survey findings and response.


Notes to editors

Visit the dedicated PII web page.

The PII study was conducted at the request of the Law Society by an external provider, IFF Research. The study surveyed 498 law firms ranging in size from sole practitioners to firms with 25 partners about their experiences and perceptions of the 2014-15 (PII) renewal process. The analysis is representative of the Law Society's member population by size (number of partners) and region. An equivalent survey has been conducted annually since 2008.

Firms have a continuing obligation to ensure they have qualifying insurance in place at all times or face closure within 30 days of expiry of the last policy. With the closure of the Assigned Risks Pool (ARP), the Extended Indemnity Period (EIP) was introduced in October 2013 as a mechanism to extend the time within which firms can seek to secure qualifying insurance.

Firms unable to obtain professional indemnity insurance (PII) cover within 30 days will enter the cessation period (CP). They must notify the SRA and their participating insurer within five business days that they have entered the EIP and if they have entered the CP. During the 60-day CP, firms are not permitted to take on new work but are permitted to continue to work for existing clients while closing their business in an orderly manner. They can continue to try to secure PII cover to avoid closure before the 60 days' CP are up.

See more information on the extended indemnity period.

Currently, the most objective measure of a firm's financial security is their rating. The existence of a rating indicates that the firm has been assessed by an independent rating agency. Unrated insurers are an unknown quantity. They have not been subject to independent scrutiny from a ratings agency. The implementation of Solvency II on 1 January 2016 will introduce consistent capital adequacy requirements for insurers across the EU with the aim of enhancing policy holder protection.

Variable renewal dates were introduced as of 1 October 2013. Firms are no longer tied to the 1 October common renewal date for their PII nor to 12-month duration policies.

On 7 May 2014, the SRA published consultation documents proposing wide-ranging reforms to the current client financial protections. The SRA stated that it intended to seek final approval by early August 2014 with the intention that new terms come into effect on 1 October 2014 with the new Participating Insurer Agreement.

On 14 July 2014, the SRA put in an application to the Legal Services Board (LSB) for a reduced compulsory PII level of cover to £500,000 and the introduction of a new outcome which requires firms to assess and purchase an appropriate level of PII. As the LSB was still considering the application, on 11 September the SRA renewed the previous year's Participating Insurer Agreement and on 18 September, it issued the list of participating insurers as of 1 October 2014.

Following two extensions for its decision, the LSB published its decision on 26 November 2014 rejecting the £500,000 proposal but approving the new Outcome, which came into effect on 1 April 2015.

On 19 March 2015, the SRA's reported that 39 firmed had entered the EIP, in contrast to 287 which had done so in 2013. The SRA stated that most of the 39 firms were in the process of orderly closure, merger or acquisition, while a handful had successfully obtained cover; it was investigating only two firms which did not appear to have valid insurance.

See more on the SRA website.

To ease the burden of the renewal process through having to fill in more than one proposal form seeking much the same core information, and to help firms shop around for competitive quotes, in 2012 the Law Society produced a common proposal form. Although some insurers and brokers were supportive, a pilot study showed that usage of the composite form was low. This was attributed in part to the fact that firms were required to provide supplementary information before a final quotation could be issued.


The Law Society of England and Wales is the independent professional body, established for solicitors in 1825, that works globally to support and represent its members, promoting the highest professional standards and the rule of law.

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