Solicitors' professional indemnity insurance market update

Following a number of changes in the solicitor's marketplace throughout the year, underwriters are warning that this renewal season is likely to be a challenging time for firms of all sizes.

This update details the circumstances that have given rise to these market conditions, as well as what solicitor firms should expect at renewal.

Key issues

• The withdrawal of Irish insurer Quinn leaves a large gap in the market Quinn covered more than 2,900 solicitor firms and insured many firms who were unable to obtain cover elsewhere. Their exit will therefore leave a significant number of firms seeking new insurers. This is likely to provoke a significant and adverse rating reaction from other 'approved insurers', with markets selecting the best or most desirable firms.
• The announcement of the withdrawal of Hiscox and the subsequent exit of Catlin has left 18 'approved insurers' (and two further exclusive facilities) - down from 23 last year.
• The Solicitors Regulation Authority (SRA) announced a crackdown on the assigned risks pool (ARP) in July 2010. Firms that are unable to exit the pool at the end of their term or to pay their premiums are likely to be closed down.
• Ever-increasing costs of funding the ARP are leading to certain insurers reviewing their involvement. According to SRA figures, estimated claims against ARP firms in 2008/9 totalled £41m, with £4.5m of premium due, but just £2m of premium paid.
• Some changes have been made to the ARP this year - new start-ups are no longer permitted to enter the ARP and the maximum period that a firm can now stay in the ARP has reduced from 24 months to 12 months. At the end of the 12 months, the firm will need to either be accepted by an 'approved insurer' or sell up/close down while paying the premium for run-off cover.
• Cover provided for solicitor firms has also been restricted as a result of changes made by the Legal Services Board (LSB). Solicitors facing disciplinary proceedings after 1 October 2010 will no longer be able to call on their PII to fund their defence costs. This removal of cover will be a significant concern to many firms.

What to expect

• Early indications are that insurers are seeking substantial hikes in premiums this year, with increases in the region of 15% being levied against even those firms with good risk-management procedures practicing in the less risky areas.
• A much longer and in-depth proposal form, with many insurers asking detailed questions on the firm's own financial status.

The Professions Division at Bluefin are professional liability risk management specialists and are the exclusively appointed professional indemnity insurance broker for ICAEW member firms.

The Professions Division, Bluefin, Solicitors Group News - August 2010