The view from PIB Insurance Brokers
The start of 2020 has seen a continuation of hardening rates from insurers in respect of Professional Indemnity Insurance (PII) for UK law firms. The first effects of increased rates had been seen in April 2019 and the prospect of rates starting to soften in the short to medium term seem highly unlikely. The reason for the premium increases were two-fold; the PII sector as a whole was unprofitable and insurers were starting to see more high value claims emanating from law firms.
For the April 2020 renewal season, firms with reasonably static fee growth and a clean claims record, saw rates increase by 10% – 15%. For firms who had reported significant fee increase or had a deterioration on their claims experience, insurers were looking for far higher rate increases. A noticeable feature of this renewal season however was that competition between insurers was far less than previously, meaning that insurers were, in most cases, able to secure the level of rate increase across their book of business that they had set out to achieve. Alternative insurers to a firm’s incumbent insurer also became a lot more selective about which firms they would provide terms to, thereby reducing competition.
Examples of this were tightening up on the level of conveyancing they would consider, looking more closely at the financial position of a firm and declining firms with previous disciplinary issues.
Due to these premium increases we saw a number of firms review the total limit of indemnity they purchase and in several cases reduce their limit to minimise the overall premium expenditure.
Finally, the availability and attractiveness of longer term (i.e. 18 month) policies diminished for April renewals.
Some insurers simply did not offer anything other than annual policies, others applied a surcharge for an 18 month policy, with a very limited number of insurers offering 18 month policies at pro rata premium of an annual policy.
Professional Indemnity Insurance
PIB Insurance Brokers is a trading style of PIB Risk Services Limited. PIB Risk Services Limited is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 308333. PIB Risk Services Limited is registered in England and Wales. Company Registration Number 02682789. Registered Office: Rossington’s Business Park, West Carr Road, Retford, Nottinghamshire, DN22 7SW.
October Renewal Season
So, what is the outlook for firms renewing in October 2020? The first thing to say is that, as already mentioned, rates will likely continue to increase at levels at best similar to April. For all law firms nationwide this will not be welcome news. The longer term effects of lockdown and Covid-19 are not necessarily fully known at this stage but the impact on fee income will already be being felt. From a business and human perspective this is obviously a very worrying time for firms, their workforce, their client base and future planning. To add in increased insurance costs now is not the message we as brokers want to be delivering but it is the reality.
In addition, because of Covid-19 and the impact this is having on businesses, insurers have started to ask more questions of all professional service firms, not just law firms, on how they are functioning under lockdown conditions and their plans once this is lifted. Therefore in addition to the normal renewal submission firms should start thinking of answers to the following sorts of questions:
How is Covid 19 affecting your business?
- Do all your staff have the ability to work remotely and have full access to all systems?
- What contingency plans do you have in place to cope with staff absences?
- How have you had to adapt your internal controls and procedures in light of working remotely (e.g. peer review and sign off)?
- Do you have an electronic filing system? If no, please provide further details of how you manage this.
- Have you got a central diary system to log business and ensure critical dates are not missed?
- What contingency plans have you got in place to cope with business demands once the pandemic is over?
As we don’t know at this stage i) when lockdown will be lifted and ii) what the landscape will look like when it is lifted this list of questions will undoubtedly change and even more information may be requested.
Our advice to firms in relation to preparing for renewal is always to complete the proposal form and get the full submission to us well in advance of renewal to allow maximum time to source the best available options. For this October, more than any other time, this will be critical as insurers will look at every submission in great detail, will likely ask additional questions or request further information and will be even more selective about which firms they will offer terms to. Face to face meetings with current and/or prospective insurers will potentially not be possible and so the importance of a full and detailed submission is of utmost importance.
At PIB, we are still fully open for business. Whilst our offices are obviously closed, our client executives are all still available to you at all times. We are happy to address any concerns you may have at the present time, provide you with a review of your current arrangements or give advice on how to prepare for renewal and how we at PIB are set up to achieve the best results for you. We are available to do this via email, telephone or video conference. Rest assured that as soon as we are allowed to, we will be back out there seeing firms in person. We also still have access to the relevant insurers so we can continue to obtain quotations and place cover for you as usual.
As the current situation is evolving and we cannot be sure of when things will return to normal, or what “a new normal” might look like, we will update you on developments in the insurance market and what we are doing at PIB to assist clients through this extremely difficult time.
If you would like to discuss your PII arrangements, please get in touch.