Professional indemnity insurance – top tips for renewal

For nearly a decade, the solicitors’ professional indemnity insurance (PII) market could have been described as benign, with a general pattern of sustained rate reductions for law firms as insurers actively competed for business.

Unfortunately, this position has changed over the last 18 to 24 months, with a ‘hard’ market cycle for insureds established well before the emergence of coronavirus (COVID-19).

Background

Due to a number of losses since 2018, various insurer stakeholders perceived PII as a poorly performing class of business and implemented a drive for sustainable profitability.

As a result, the PII market has seen various insurers either withdraw completely or dramatically curtail their risk appetite.

This lack of competition, coupled with a concerted attempt by insurers to recoup long term profitability, has led to a more difficult environment with:

• qualifying insurers aiming for rate increases of circa 10 to 20% across their existing solicitors’  PII book in the first half of 2020
• a reduced appetite to provide excess layers (for firms requiring more than the mandatory limit of indemnity) meaning that excess layer rate inflation can be circa 20 to 30%
• insurers being more selective to the type of firm they offer their capacity
• insurers looking to lessen their exposure by requesting reduced limits, increasing self-insured excess’ and imposing restrictions in cover
• although it is too early to assess the full impact of COVID-19 on solicitors’ PII, insurers using the pandemic as an additional reason to challenge pricing and ask probing questions - especially in relation to how firms have adjusted to conducting business during lockdown

Of course, some firms will be impacted more by these trends than others, but your broker’s role is to vehemently resist the current market forces and articulate how your firm is managing the risks currently being faced.

Risk management

Evidencing vigorous risk management policies and procedures has been crucial to achieving positive outcomes in negotiations with insurers for some time.

For mid-size and larger firms, it’s likely you are already working collaboratively with your incumbent broker to help highlight your risk management and compliance frameworks. 

With events moving rapidly over the last few months, it is natural that law firm managers have prioritised the operational requirements of their business.

However, insurers are particularly interested in how firms have manged the evolving risk landscape at this time, with some insurers requiring completion of specific ‘COVID-19 questionnaires’ that seek to gauge how law firms have responded.

Many practices have re-examined/developed their policies and procedures and re-evaluated their methods of working to cope with the current circumstances.

We strongly recommend a detailed record is kept of any decisions made relating to the following areas in order to help assuage any concerns insurers may have:

• general business continuity (maintaining standard of service, utility of the case management system, adhering to accreditation requirements, reallocation of staff, learnings for future risks such as a second pandemic wave, etc.)
• continued supervision, file audit and training for remote workers
• governance structure (clear responsibilities and reporting lines, impact of any furloughed staff, etc.)
• client confidentiality (paper files at employee homes, access to IT systems by other members of an employee’s household, etc.)
• financial integrity (AML/KYC, safeguarding client monies, financial hygiene, etc.)

Further to the tips below, we sometimes recommend submitting a short two-page summary of the risk management response to enable insurers to easily appreciate the attention given to it across a firm.

Top tips for managing renewal

In light of the existing state of the PII market, and the risk management issues necessitated by the impact of COVID-19, the following are our top tips on how to manage your next renewal: 

1. Start the process early

Providing insurers with completed proposal forms and any additional information as early as possible will give your broker the time and opportunity to negotiate in depth.

Where a multi-layer PII placement is purchased, your broker is likely to require a longer period to consider alternative insurers or to seek new insurer capacity where it may be lost or reduced.

2. Be prepared to answer a greater number of questions

As referred to above, insurers are applying a higher level of scrutiny when analysing the information presented by insureds, so it is imperative that all proposal forms and additional material is clear and concise.

Providing as much detail as possible from the onset will allow your broker to best represent your firm.

3. Be prepared to answer additional subjectivities

As well as supplementary information required by insurers, you should be prepared to answer any additional subjectivities that insurers may pose. In the current market insurers are taking a more cautious approach and often include subjectivities to their initial terms.

It’s vital that the response given is as comprehensive as possible, as this could be the difference between an insurer ultimately offering capacity or not.

4. Work with your broker to ensure a clear strategy is in place

Working with a broker that has taken the time to understand your firm, and the holistic nature of how you may be viewed by an insurer (from risk management to claims history), can be crucial.

This is a two-way relationship, with trust and regular dialogue necessary to formulate a strategy for the broker to properly represent you.

For anything but the smallest firms, (virtual) meetings with insurers should be arranged so that you and your broker are able to bring your proposal form to life. Positive results are unlikely to be gained by simply submitting a proposal form and hoping for the best.