Professional indemnity insurance overview
Professional indemnity insurance (PII) covers civil liability claims, usually professional negligence, in private legal practice.
Solicitors are obliged under the Solicitors Regulation Authority (SRA) Indemnity Insurance Rules to have PII in place at all times. New firms must have it in place before they start practising.
Existing firms must have cover when renewing their practising certificate.
If your firm does not have PII cover, any claims and associated costs, plus interest, may be recovered from your firm’s principals.
- Areas of legal work where you’ll need PII
- Arranging PII cover
- Improving your chance of getting cover
- Comparing quotes
- Cover for when your firm closes
- If your insurer becomes insolvent
- If you cannot renew your PII
Areas of legal work where you’ll need PII
You must have PII if you’re a solicitor in private practice.
You’ll need PII if you’re working in-house for clients other than your employer if your work involves:
- providing commercial legal advice services
- working at law centres, charities and other non-commercial advice services
- working in foreign law firms
You do not need PII if you’re working in-house and:
- you’re working only for your employer
- your firm practises wholly overseas – but you must have the indemnity insurance required by the jurisdiction in which your firm practises
Arranging PII cover
Start the process early
Until 2014, all law firms had to renew their PII on 1 October each year. Despite this rule being abandoned by the SRA, around 75% of firms still renew on this date. This can make it difficult to get quotes in the weeks before.
If your renewal date is 1 October, you might want to consider moving it to a more convenient time for your firm. Most insurers offer extended period policies for this.
- gather all the information you need – including your firm’s previous six years’ claims history from your current broker
- spend time on your proposal form – it’s the first impression your broker will get of your firm, so it should look professional and give as much detail as possible
- meet with your broker to discuss anything you’re concerned about or to give them extra information
How much cover to get
The mandatory level of insurance is £2 million. This is sometimes called ‘primary layer’ cover. You should check with your broker whether this is enough cover for your firm.
Using a broker
Most insurers who offer solicitors’ PII can only be approached through a broker.
A broker will act as your agent. Good brokers will give independent, professional advice on the best cover available. Large firms can usually get insurance through one broker, but smaller practices may need more than one to access all the insurers who can offer them PII.
The solicitors’ PII market is relatively small so you do not need to approach lots of different brokers. Many have access to the same markets so your request could go to the same insurer several times.
Information you’ll need to provide
To assess what kind of risk your firm presents, you’ll be asked for details about your firm’s:
- claims history
- risk management practices
- areas of practice and expertise
- disciplinary and regulatory history
- ability to meet uncovered claims (claims for more than you’re insured for
Improving your chance of getting cover
Competition for PII insurance is high. To improve your chance of getting cover, your firm must create a good impression.
If your firm works in what’s seen by insurers as a high-risk area of law – such as conveyancing or commercial – and/or has a claims history, you should show that:
- your firm has good business practices
- you’ve addressed the issues that resulted in previous claims
Make sure your website is up to date with the areas of law your firm works in and the services offered. Brokers often check websites as part of their research into a firm.
As well as your firm’s claims history and areas of law, the broker will also consider:
- the number of partners in your firm – some brokers specialise in firms with fewer than four partners
- fee income – you should explain any significant changes since your last quote
- risk management – you should be able to show this is part of your firm’s culture
What to avoid
You’ll limit your chance of getting an offer of insurance if:
- the proposal form has errors, or is badly written or presented
- you do not disclose negative information about your firm that can be found online
- you show no details of succession planning
As well as comparing the cost of premiums, you should:
- compare the services offered by each broker, particularly the support you’ll get if you need to claim
- make sure the quotes provide the right level of cover – the SRA’s £2 million minimum level of indemnity might not be enough for your firm
Cover for when your firm closes
PII taken out when a firm closes is called run-off cover. It covers the following six years and provides compensation for consumers after a firm has stopped doing business. Run-off cover also provides financial security for retired partners.
Premiums are usually two or three times the cost of the last premium, but because the cost is spread over six years, this works out at around half of what it would have been had the firm remained open.
If your insurer becomes insolvent
If your insurer has become insolvent you should find replacement PII cover “as soon as reasonably practicable and in any event within four weeks” (see rule 6 of the SRA Indemnity Insurance Rules). You’ll need to buy an additional premium for this.
If you cannot renew your PII
If you cannot renew your PII before it expires, your insurer will extend your policy for 90 days.
This is to give you more time to arrange cover, but your firm will not be able to operate as usual for the whole of this period.
If you need urgent advice, email our Practice Advice Service or call our PII helpline:
Call: 020 7320 5675
Open: 9am to 5pm, Monday to Friday