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PII: start talking to your broker now for October renewals
As we head deeper into summer, we’re urging law firms with a renewal date of 1 October for their professional indemnity insurance (PII) to start talking with brokers now. We still have a hard market for insurance, meaning that many in the profession will face greater costs and greater difficulties in their attempts to find cover before the deadline.
Most firms that had a renewal date in April experienced substantial premium increases this year – an average of around 30% – and we expect hard market conditions will persist through the main October renewal period and beyond.
While all firms with an October renewal should be considering contacting their broker, the need is more pressing for those whose sources of fee income have changed significantly during the pandemic.
Firms who have been doing more conveyancing work, for example, may not be aware that they could struggle with renewal, because – although their fee income may have increased – underwriters may be wary of an increased risk of high-cost claims.
We urge these firms to engage in open dialogue with their broker and take advice now, so that they can develop a proper understanding of their options. Not doing so increases the risk of a disorderly closure.
Here are some suggestions about how firms can prepare for their PII renewal, and alternatives for those concerned about the future.
The first step firms can take is to engage the services of professionals who can provide a ‘health check’ and advise on the future viability of the business.
Any form of advice should be taken early. If this step is left too late, firms may be limiting their opportunity to find and implement a workable action plan.
Look at your PII spend
COVID-19 has forced the profession to look at its overall expenditure and PII premiums must be treated in the same way.
PII premiums are a significant expense for firms, so it’s prudent to consider what you can do to control this spend and keep it as low as possible.
Is your broker providing you the best representation? Does your broker have direct access to a range of markets? Is your firm being presented in the best possible light to underwriters?
The Law Society has a useful buyers’ guide for PII for firms.
Consider changes in your risk profile
The last year and a half has seen significant changes in the way that firms conduct business.
Remote working has raised concerns about supervision, and an increased reliance of information technology has increased the opportunity for cyber-related claims.
The stamp duty land tax (SDLT) holiday, or land transaction tax (LTT) in Wales, means that many firms will have been doing more conveyancing work. These are all things that could affect your risk profile.
You should discuss your changing work practices with your broker, and it may be necessary to inform your current insurer about substantial changes in advance of your renewal date.
With the Solicitors Regulation Authority (SRA) consulting on changes to the minimum terms and conditions (MTCs) that seek to clarify the limits of cyber-cover, now would also be a sensible time to review whether or not you are adequately insured to deal with cyber events.
Closure and successor practice
Closure may unfortunately be the only realistic option for some firms. If this may be on the table, it’s better to have a planned and orderly closure as opposed to a chaotic one precipitated by the unavailability or unaffordability of PII.
The Law Society has published guidance on firm closures.
Finding a successor practice can provide a neat solution for a struggling firm. If your practice closes without one, then the run-off provisions in the policy are triggered and a run-off premium is payable.
Becoming a successor practice can provide some positives for firms, so think about what you might be able to offer a potential successor – such as a strong local following, loyal client base, niche practice area or will bank which could fit with another firm’s profile.
Start that dialogue now, engage with a firm that could be interested and begin to look at the long-term future of your practice.
We urge the profession to address issues early and take advice if your firm is financially challenged.
See below for organisations you can contact if you have either personal or company issues relating to the closure of a firm:
- the Law Society – Practice Advice Service
- the Solicitors' Charity
- Solicitors' Assistance Scheme