For the second year running professional indemnity insurance (PII) renewal went smoothly for the vast majority of firms, the Law Society of England and Wales’s 2015-16 PII survey has found. The market remains competitive and very favourable for firms, with plenty of rated capacity. Worryingly, however, the cost of run-off cover has increased significantly in the last year.
Commenting on the survey results, Law Society president Jonathan Smithers said:
'The increased rated PII capacity and lower premiums are good news for firms, as is the easier renewal process. Firms should take advantage of these favourable conditions and shop around for cover when renewing.
'It is vital firms keep their risk management up to date, in particular in relation to scams, if they wish to continue to benefit from lower PII premiums. Some insurers now ask about the measures firms have taken to protect against scams, including their security and IT systems. The Law Society provides training and resources to help solicitors prevent scams and keep up to date on this important issue.
'Run-off cover is a necessary protection for clients, employees and for retiring solicitors. The hike in run-off cover and the closure of SIF in 2020 create challenges for partners in small firms wishing to retire. For the same reasons, closing down a firm will require careful forward planning. The Law Society is considering whether there are any viable options to replace the SIF beyond 2020.'
The survey found:
- The average premium was 8% lower this year and mean premium costs dropped for all firm sizes.
- 76% of firms found the renewal process easier (up from last year's 62%). 52% of firms submitted only one proposal form, 8% reported 'none' and 30% submitted two or three forms.
- The strongest drivers for choice of insurer were cost and existing relationship with insurer. Nearly two thirds of firms renewed with their previous insurer. When asked about claims experience, 86% of firms were very satisfied or fairly satisfied with the way their insurer had handled claims in the last year.
- More than a third of firms have moved to variable renewal-date policies.
- Worryingly, the median cost of run-off cover has gone up from last year's 250% to 300%. Larger firms were more concerned than small firms about the Solicitors Regulation Authority reducing compulsory run-off cover from six years to three.
- Almost half of surveyed firms agreed there should be post-six-year run-off cover
- Almost a quarter of firms reported being targeted by scammers in the last year; fewer than 10% of the attempts resulted in theft of client-account monies. Insurers paid up in full or in part in around one-third of cases; the banks paid up in another third. Firms' awareness of the our new practice note, Protecting your firm if you fall victim to a scam, was very high.
Download the full report and our response from the links below.
1) The PII survey was conducted at the request of the Law Society by an external provider, Mustard Research Limited. It surveyed 560 law firms, ranging in size from sole practitioners to firms with up to 25 partners, about their experiences and perceptions of the 2015-16 PII renewal process. The analysis is representative of the Law Society's population of member firms by size (number of partners) and region. An equivalent survey has been conducted annually since 2008.
2) 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.
3) Variable renewal dates were introduced on 1 October 2013. Firms are no longer tied to the 1 October common renewal date for their PII, nor to 12-month duration policies.
4) In May 2015, the Law Society produced a practice note Protecting your firm if you fall victim to a scam. The practice note has been updated to reflect experience of the SRA's implementation of the regulatory requirements.
Earlier this year, the Society launched a new webpage dedicated to scams-prevention advice, training and products. At the same time, the Society published common-sense tips for firms which cover:
- handling client money
- verifying bank-account details
- risks associated with email, telephone calls and use of WiFi
- security policies and training
- technical preventative measures, and
- reporting scams
The Society's prevention advice is reviewed regularly and firms are urged to ensure that they keep their awareness and training up to date, as the nature of scams can change quickly.
The Society's webpage on cybersecurity provides advice on how to avoid attacks and offers free online training. The Society can sponsor firms to join Cyber-security Information Sharing Partnership (CiSP) - a free initiative for sharing cyberthreat and vulnerability information.