A quarter of all law firms making professional indemnity insurance (PII) applications do not know whether their insurance broker has full access to all insurers prepared to insure their firm.
The findings have been revealed in a Law Society-commissioned study which surveyed 600 law firms about their experiences and perceptions of the 2012-13 PII renewal.
The analysis reveals that in 27 per cent of PII applications, the firm did not know the level of access their broker had to insurers and did not ask for this information.
The results suggest that, while larger firms asked brokers which insurers they would access or felt that they already had this knowledge, there is significant confusion among smaller firms about the extent to which individual brokers are 'tied' and can only access particular insurers, or whether they cover some or all of the market.
The statistics reveal the level of complacency around sourcing quotations from a firm's full available market. A quarter of firms with less than 11 partners only approached one insurer and a large proportion of insurers in the market received applications from only a very small proportion of firms.
The findings suggest that, not only are some sole practitioners and small firms failing to use the market to their advantage, they are not seeking advice from their broker about how to do this.
Law Society chief executive Desmond Hudson said:
'While the PII market has remained relatively stable for three renewal cycles, firms should not be lulled into a false sense of security. They need to source quotations from their full available market and therefore need to know which insurers their broker can access. Solicitors should also check the financial strength of their insurer before purchasing their policy. It is essential to know that an insurer is financially secure and will be able to meet any claims made on a policy, due to the long-term nature of solicitors' PII, particularly run-off cover, which must be provided for six years.'
The Law Society's warning about insurer solvency is being aimed at smaller firms and follows the recent financial collapse of two insurers, Quinn and Lemma. Lemma at its height had 2.9 per cent of the total solicitors PII insurance market by share of premium, while Quinn had 9.86 per cent of premium share in 2009.
At present 12.5 per cent of the PII market premium share is with unrated carriers.
While commercial pressures on firms may tempt them to choose the 'cheapest' PII quote, the true cost of this cover can be frightening. If an insurer becomes insolvent, there may be a very high price to pay, in a personal, as well as business capacity. An official rating from an independent ratings agency is the most objective measure of a firm's financial security.
Law Society chief executive Desmond Hudson said:
'Smaller firms need to make much better use of their available market and they need to obtain quotations from all insurers willing to offer cover. They should then assess these quotations based on a range of factors, including the insurer's financial security rating. This is not a purchasing decision that should be made solely on price.'
The Law Society has produced guidance to assist its members to use the market to their advantage and has published new guidance emphasising the importance of an insurer's financial security.
View the Law Society survey findings
Ends
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 600 law firms ranging in size from sole practitioners to firms with 25 partners about their experiences and perceptions of the 2012-13 professional indemnity insurance (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.
The Solicitors Regulation Authority (SRA) does not undertake any solvency checks on insurers and does not require a minimum level of financial security for participation in the solicitors' PII market. The SRA has, however, introduced a transparency requirement for all qualifying insurers. Insurers must now disclose whether or not they have a financial security rating and the provider of this rating.
The SRA and the Law Society do not vet, approve or regulate insurers. The SRA enters into the qualifying insurers' agreement with insurers each year where they agree to provide solicitors with policies in accordance with the minimum terms and conditions in the SRA Indemnity Insurance Rules.
Regulation of qualifying insurers is undertaken by the Financial Conduct Authority, or, where an insurer from another jurisdiction is passported into the UK system, the financial regulator of that jurisdiction.
The Law Society 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.
Contact: Catherine Reed, The Law Society, +44 (0)20 7320 5902