The decision to phase out the assigned risks pool (ARP) during the 2011 and 2012 renewals, leading to its abolition in 2013, has added significant anxiety to the already tumultuous market for professional indemnity insurance (PII).

This transitional period will see the introduction of joint liability for both the solicitors’ profession and qualifying insurers; but for now and for the 2011 renewal the ARP system remains much the same.

For qualifying insurers this is not an ideal situation - most were hoping that the ARP would be abolished sooner, but was this really practical? Whatever your view, it is here to stay for 2011 (although reduced to six months), and its existence will once again drive insurers’ behaviour – dictating their appetite for growth or indeed a desire to reduce the amount of premium written in order to reduce ARP exposure.

Like any market, PII is a simple case of supply and demand, and 2011 is not going to be the year for greatly intensified competition among insurers. This year is certainly unlikely to see a flood of insurers entering the market. Maybe this could happen in the future as the ARP exposure reduces, but not now.

For many law firms, premiums have risen considerably during the last couple of years. Some of the harder-hit firms are expending anywhere between 10% and 20% of their fee income on PII (with firms in the ARP paying considerably more). If this trend continues, the reality is that firms will be at risk of not being able to pay premiums, placing them in an untenable position.

The smaller firms continue to be the focus of concern for many insurers and are most at threat. Insurers are particularly wary of firms with two and three partners because the number of insurers for this sector is not great.

For firms heavily involved in conveyancing, insurers will be ultra-selective and scrutinise every aspect of risk before offering terms. The reason is simple – insurers have been on the receiving end of significant levels of claims arising from conveyancing in both the residential and commercial property sectors, and if you add exposure to mortgage fraud then the value of claims is mind-boggling.

Statistics suggest that firms with two and three partners have been a disproportionate cause of these problems. Of course, it is only a minority of firms generating these claims, but insurers sometimes find it difficult to identify the good and the bad firms, so why take the risk in the first place?

It must be remembered that it is not just the smaller firms exposing insurers. Larger firms are not immune from claims and, in fact, the largest claims in the market are generally from the bigger firms. This is perhaps obvious in view of the type of transactions in which they are involved.

The whole profession is under closer scrutiny. Understanding what a firm does to manage risk is crucial for insurers, and firms should not be shy in coming forward to highlight the processes they have and the systems they employ to enhance risk management. The cost of PII often represents the third-largest overhead for a firm, so planning and approaching the renewal with a well thought through strategy is clearly important.

More than 11,000 law firms in England and Wales will be looking to renew their PII during the next few weeks. The 1 October deadline is fast approaching for the 2011 renewal, which is likely to be challenging for many firms and, in some respects, even more challenging than in 2010. Not all firms will obtain cover and some will face time in the ARP. All firms need to ensure that the best possible case is put forward to insurers in pursuit of a suitable and, importantly, affordable policy come 1 October.

There are a number of key areas that firms must address.

All firms should be extremely careful when preparing their applications for PII. This is the key document that insurers will use to calculate your firm’s premium, and the way in which it is presented can, at times, be the difference between receiving a quote or not.

First, if you make a mistake when completing an answer to a question, start again. Do not attempt to cross out the answer. Ask for another form or simply download another copy – most forms are available online. Insurers are providing cover for solicitors for claims emanating from errors and/or omissions. Demonstrating such errors and omissions on the proposal form is unlikely to create the view in the underwriter’s mind that they are dealing with a professional firm.

In cases such as this, terms, if provided at all, are likely to be less favourable than might otherwise be the case.

Please ensure that all questions are answered. All questions contained in the proposal forms are there for a reason. They are all relevant – even if this may not be immediately apparent to you – and most of them carry a rating factor. Answer each question with care and elaborate on the answer if you feel this will help an insurer to better appreciate your firm’s profile. If in any doubt about the meaning of a particular question, do not make assumptions – obtain professional advice from a specialist broker with experience of handling firms of your size.

They will be able to explain what insurers are looking for and help you phrase the answer appropriately. Ideally, supply a comprehensive account of your firm. What areas of work does it specialise in? What is the profile of clients it represents? What is its approach to risk management and its management structure? This is all information that insurers will factor in when assessing premium.

Overall, the application for PII needs to be professional, accurate and reliable. It must be able to stand up to scrutiny. Insurers have historical records on most firms, having gathered intelligence throughout the last few years, so consistency is crucial. Do not contradict what you may have said in past applications. Prove to the insurer that you deserve a competitive quote and that your firm should be taken seriously as an acceptable risk.

Make sure that you sign and date the proposal form. This sounds obvious, but we have been required to return many forms in the past with a request for a signature. This only delays the acceptance process and can leave the door open to insurers changing their mind due to any claims activity or any material changes in the interim period.

Many law firms have achieved Lexcel accreditation and many firms will, if they have not done so already, apply for membership of the Conveyancing Quality Scheme. Will this bring immediate discounts to a firm’s premium? The simple answer is no, but this mark does demonstrate to insurers that a firm takes the delivery and maintenance of quality service very seriously. Insurers therefore view it favourably and, although not easily quantifiable, it does have value in keeping premium levels to a minimum.

If your firm has notified claims in the past, please provide a commentary on each notification, even if they are closed with no payments. Tell us about the rectification measures put in place following an incident. Insurers need assurance that you take claims and complaints seriously and do not treat them as part of everyday business.

We would strongly advise that you select your broker carefully. The broker can act as a gatekeeper for your firm, ensuring that insurers only see the finished article – a proposal fit for purpose. Two pairs of eyes are better than one, and whether you ask a colleague, or a broker to provide oversight of the accuracy of the application, the reduction of errors or omissions on the forms will considerably improve the probability of a successful renewal.

If firms are well prepared, provide a professionally completed proposal and ensure they are presented to insurers equally professionally, they will obtain more competitive rates. Insurers see many applications and they all want to improve their ‘book’ of business. They will want to lose some clients they have doubts about and look to replace them with better-selected risks.

Making sure your firm is seen in the best light is a valuable use of your time – leaving this year’s renewal to chance could be the biggest risk your business faces this year.

Martin Ellis and Colin Taylor are directors at specialist professional indemnity insurance broker Prime Professions