We’ve compiled a list of some of the issues and possible solutions that you should consider if you’re renewing your firm’s professional indemnity insurance (PII) during the coronavirus pandemic.
Is there a minimum number of insurers from which I should obtain quotes?
Not necessarily. You should use more than one broker to gain access to the full range of insurers that are willing to offer PII to your firm. Different insurers will underwrite different types of firm, with the turnover, number of partners, and the volume of particular kinds of work, such as conveyancing, being important determinants.
A good broker will provide independent, professional advice and assistance in preparing your submission to an insurer.
Before your broker submits your presentation to insurers, you could contact other brokers to compare. This can give you more information about different brokers’ approaches, and which brokers have tied arrangements with particular insurers.
You can then decide which brokers you would like to use, and which insurers they should approach on your behalf, and instruct them accordingly.
You can approach a large number of insurers using two brokers (or three where some of the brokers do not have full market access). It’s important to tell the brokers which insurers to approach, so that an insurer does not receive your proposal from more than one broker.
Due to tied arrangements between some brokers and insurers, smaller firms in particular may need to approach multiple brokers in order to access the full range of insurers that are willing to offer PII to their firm.
For further information see our PII buyers’ guide.
How can I make my proposal more attractive to insurers?
When determining whether to offer cover, insurers consider risk. So it’s essential that you have policies and procedures to mitigate risk, and that you can demonstrate that these are in place and being followed throughout your firm.
When determining whether to offer cover, insurers are looking for more material that will help them assess the level of risk. As a minimum your submissions should include:
- a fully completed proposal form
- claims summaries for at least seven years (although some ask for ten years)
If there are claims notifications or payments etc, you should:
- provide a brief overview of what happened, and if claims are not settled, the expected quantum
- explain what your practice has done to manage risks and avoid recurrence
- include your last two years’ completed accounts
- if possible, include up to date management accounts
Insurers will also want to know about the financial viability of a practice. Under the SRA’s minimum terms and conditions (MTCs), an insurer is on cover regardless of whether a firm pays the policy excess or even its PII premium, and if a firm closes without paying for its run-off cover, the insurer will also be responsible for providing that cover, so their concern is quite reasonable.
Some practices may not appear to be financially viable to an insurer because their fee income is too small, but they could be financially viable due to external sources such as independent wealth of partners. If your practice falls into this category, it’s important to make this clear to insurers.
For more information see our guidance on PII.
What concerns have the coronavirus pandemic and lockdown raised for insurers?
It's likely that insurers will be assessing business continuity and preparedness for any further COVID-19 (or other) disruptions more rigorously. To assure themselves that firms have appropriate monitoring and management systems in place they could ask for additional details, such as:
- What advice, if any, are firms giving clients on coronavirus?
- Has the firm given any undertakings, the discharge of which are now beyond their control?
- Are there any expected major changes to the split of work and revenue of the firm?
- How is the firm planning for or managing any potential solvency issues?
- When was the business continuity plan last reviewed, and how is it being implemented?
- Does the firm have adequate processes in place for any such period, such as on peer review, conflict checking, or to adequately action specific guidance and requests from the regulator?
- Does the firm have adequate systems in place, which are accessible remotely, to make sure no missed deadlines occur, and risks are monitored?
What questions should I ask when making enquiries with a broker?
Ask questions including:
- Which insurers can you access?
- Can you access them directly or through a chain of brokers?
- If through a chain, how long is it?
- How quickly can you submit my application and get an answer?
- What fees do you charge?
- If I receive an offer, how long will it remain open for acceptance?
- Do you have access to low cost finance to fund the premium?
- Are you regulated by the Financial Conduct Authority (FCA)?
For more information about purchasing PII see our PII buyers’ guide.
What should I consider if I end up with more than one PII contract offer?
If you receive either multiple offers of insurance, early renewal offers, or offers for a policy term which is longer than the standard 12 months, you will need to consider which offer is in the best long-term interest of your firm.
This will not necessarily be the cheapest offer. There are a number of factors to consider in making your choice.
For example, it is likely that premiums will increase over the next couple of years so a policy of over 12 months might be cheaper in the long run.
You may also consider the claims handling service and support the insurer provides.
If you’re deciding between accepting renewal terms for your existing policy, or an alternative cheaper quote, consider the worst-case scenario. What would you do if you swapped to the cheaper alternative and at the next renewal, cover with the alternative insurer was not available or the cost had increased significantly?
Insurers like a stable source of income, so the insurer you left may not wish to put forward terms. If this were to happen can you be confident that others would give you cover at competitive rates?
Always switching to the cheapest available cover could make insurers wary of where else you might be seeking to cut costs.
For other potential issues to consider, see our PII buyers’ guide.
Can I spread or defer my PII costs?
Wesleyan Bank – a strategic partner of the Law Society – has made us aware of offers for members who are concerned about their ability to pay for premiums upfront.
Firms may of course also wish to speak to their bank as well about potential PII loans.
We're also looking into the suitability of the British Business Bank's Coronavirus Business Interruption Loan Scheme (CBILS). This is now available through participating lenders of the Bank. You may be able to get a loan to help with PII or other costs. See the British Business Bank website.
Some elements of the government help scheme might free up resources to pay for PII. Details can be found at GOV.UK.
We’re investigating market options for members and will provide further details as they become available.
What should I do if can’t contact my broker?
Some brokers might be experiencing delays in their operations, and it may take longer than usual to contact them, or for them to return calls or reply to messages.
However, if you cannot establish communications with your broker in a timely manner, you may wish to contact a different broker. You can find lists of brokers on the British Insurance Brokers Association website.
Alternatively, we've compiled a list of brokers who have good market access and have told us that they're ready to work with our members:
What happens if my broker can’t find cover for my firm?
You should start your insurance renewal process early, at least two months before the renewal date. Try a range of brokers as soon as possible and conduct a full market appraisal of all options.
We publish a wide range of help and guidance on PII for our members.
You can also call our Practice Advice Service PII Helpline on 020 7320 5675.
If you cannot find cover then solicitors have to operate within the SRA’s extended indemnity period and cessation period – see below.
What happens if I end up in the extended policy period (EPP) or cessation period (CP)?
If a firm does not obtain a new PII policy before its current policy expires, the firm’s last insurer is required to extend cover for a further 30 days under the EPP. During this time the firm can continue working as normal while trying to find alternative cover.
If the firm is unable to obtain a new policy within this EPP, it has a further 60 days of the CP to plan to close in an orderly fashion (or attempt to be taken over or merge with a successor practice). During this time the firm is not permitted to take on new work but can continue to work for existing clients and attempt to find a new insurer.
It is an unfortunate reality that in a hard market some firms which insurers perceive as high-risk will not be able to find affordable cover – or perhaps any cover – and they may be forced to close.
However, in response to the particular difficulties that firms may face as a result of the current circumstances, the SRA has announced that it will consider providing waivers to firms that are able to negotiate an extension to their EPP or CP with their old insurer. This could provide a lifeline to firms that need a little longer to find new cover. You can read more about this on the SRA website.
What should I do if my insurer becomes insolvent?
See our practice note on insolvency of a qualifying insurer.
Most importantly, existing policyholders must arrange replacement insurance as soon as reasonably possible and in any event within four weeks of the relevant insolvency event. The practice note also refers to potential avenues for redress and compensation.
You should consider the financial stability of an insurer before accepting a quote. Further information about the security rating of individual insurers is available on the SRA’s Participating Insurers webpage.
What is the SRA’s advice?
Further guidance can be found on the SRA website.