Taking shelter

The headline was arresting for any solicitor involved in the management of a law firm who read City AM on 23 July. ‘Lawyers face problems with nearly 40 per cent of insurers considering pulling out of PII market,’ said London’s free business newspaper.

Market capacity

So far, that dire prediction has not come to pass. ‘Three new providers have joined the market since 2023, and none have left. This is a positive sign of underwriters’ growing confidence in the profession,’ notes Linda Lee, chair of the Law Society’s PII committee.

‘Following the April renewals the market appears to be the most stable it has been since 2018,’ Lee adds. ‘And while we are aware of individual problems experienced by specific firms, the prospects for the profession as a whole are the best they have been in the 2020s.’

Her view is supported by leading brokers contacted by the Gazette. ‘There’s ample capacity in the market currently, with most existing insurers eager to grow their portfolios with quality business,’ Lockton partner Brian Boehmer says.

'We haven’t observed any significant exits in the market, nor indications that insurers are planning to reduce their portfolios'

Brian Boehmer, Lockton

Practices with modest fee income engaged in high-risk work will find options more limited, he adds. Overall, though, Boehmer reinforces Lee’s view: ‘We haven’t observed any significant exits in the market, nor indications that insurers are planning to reduce their portfolios. The introduction of new entrants has positively increased competition.’

‘Despite messaging about the claims landscape worsening, it is actually a more competitive and flexible market this year, which is a much-needed reprieve for the profession,’ Miller’s Zarina Lawley adds. ‘Despite messages from some insurers about claims contagion impacting their market appetite, the trend has continued towards a softer market, with a number of insurers increasing their appetite on the highest-risk work types such as conveyancing in response to competitive pressures from other markets.’  

Lawley says the entry of a number of new insurers has increased capacity, helping the downward trajectory of rates for firms considered good risks.

Conveyancing problems

Lee says: ‘Conveyancing is a perennial problem area for PII, making solicitors’ PII one of the least profitable areas of casualty insurance. With only a limited number of underwriters willing to provide cover, it can substantially increase the price of firms’ insurance.’

‘The practice areas attracting scrutiny have not changed,’ Miller’s Calum MacLean says. ‘But the current market has led to some insurers relaxing their restrictions on the percentage of residential work.’ That said, he adds: ‘It isn’t practice areas per se that are the subject of greatest scrutiny, so much as specific niches within a variety of practice areas.’

MacLean cites specific problem areas: purchases of Building Safety Act-impacted properties; buyer-funded development work; verification of overseas entities; and anything that involves crypto-assets. ‘Insurers also are alert to any work where sanctions may apply,’ he adds.

The Law Society’s most recent PII Survey found that firms that had provided conveyancing in 2022/23 paid an average premium of £50,000, compared to just £7,000 for firms that had never done so.

This leads Lee to observe: ‘We would encourage firms that only provide conveyancing services occasionally to consider whether or not this work justifies the greatly increased cost of their PII premiums.’

On the upside, she adds: ‘Indications are that conveyancing claims are down slightly on last year, though they remain high and costly.’

Building Safety Act

There are not currently large numbers of claims in relation to the Building Safety Act 2022, Lee says. The act was the legislative response to the Grenfell Tower tragedy, and there are concerns that solicitors bear an inappropriate burden of responsibility for establishing where liability for remedial works falls following sale of a property.

‘Underwriters are reasonably concerned about the new risks that it poses,’ Lee says, ‘so anyone who has been working in this area should not be surprised if they are required to provide detailed information about their potential exposure.’

Private client

Boehmer notes: ‘We’re seeing a noticeable increase in claims related to trust, wills and probate work, which now account for over 20% of annual claims, up from 15% five years ago.’

This is likely driven by ‘the rise in contentious probate work and the increasing value of assets involved’, he adds: ‘Disputes among family members and failures to check the capacity of the deceased are becoming more common and costly for both practices and insurers.’

MacLean confirms this. Claims are more likely, he says, when the ‘value of assets is sufficiently high to make action worthwhile’.

Picky insurers?

Boehmer cautions: ‘It’s important to note that many leading insurers operate through a limited distribution panel, so not all insurance representatives have access to every available option. Practices that present themselves well will benefit the most in this competitive environment.

‘Any buyer-funded development work remains highly scrutinised by insurers due to the losses that have materialised from this type of work.’

Financial mis-selling is not viewed favourably by many insurers, he adds, ‘given the regulator’s stance’ on ‘the breadth of coverage afforded’ under the minimum terms and conditions (MTC).

‘Solicitors Regulation Authority Minimum Terms & Conditions wordings remain problematic,’ is Lawley’s assessment, ‘both for the profession as a whole, and the insurance market.’ That is especially so given court decisions on aggregation and ‘public protection’. In leading cases like Dreamvar, claims were required to be paid out even where the firms were not necessarily at fault.

‘No other profession has such onerous insurance requirements,’ Lawley says. ‘While this undoubtedly provides a greater degree of public protection than any other profession, it also reduces insurers’ ability to tailor insurance terms. The extent of MTC cover has contributed to a more litigious environment and solicitors paying more for their insurance than other professions.’

Lee stresses: ‘The high levels of protection afforded to solicitors and their clients as a consequence of the SRA’s minimum terms and conditions do mean that PII premiums are a significant cost for our members.’ However, she adds: ‘Our insurance distinguishes us from other legal service providers, and provides necessary reassurance for solicitors and those who purchase their services.’

Excess layer

‘Inflation is coming back under control, with most firms experiencing single-figure percentage increases in their premiums,’ Lee continues. ‘It is worth noting that most firms have experienced increases in fee income, which will minimise the effect of increased premium costs. Some sources have informed us that well-managed firms are actually experiencing rate decreases.’

Boehmer adds: ‘The first excess layer market is seeing a boost, likely influenced by recent case law on the aggregation clause. While the overall conditions are positive, practices shouldn’t become complacent– there will still be areas where choice is constrained.’

‘It’s too early to provide specific pricing details since many practices are yet to be quoted,’ Lawley suggests. ‘However, we are seeing rate concessions, although this may not translate into significant year-on-year premium reductions due to the growth in rateable fee income across the legal profession.’ For well-run practices with stable activity profiles and no significant claims, she adds, ‘PII costs shouldn’t be eroding into profits. We can expect a softening of rates come October, but predictions of rate cuts over 20% seem exaggerated’.

Cyber insurance

Cyber insurance does not cover consequential loss, but the response to an incident like a firm being the victim of hacking and ransomware. The Law Society’s PII Survey revealed that fewer than three in 10 firms have a cyber insurance policy.

This is a concern, says Lee: ‘Given clarifications made to the SRA’s minimum terms – which now explicitly exclude losses affecting firms rather than clients – we are concerned that many members do not appreciate the level of cyber risk to which they are currently exposed, and would encourage them to consider whether they would benefit from purchasing a cyber insurance policy.’

She urges firms to purchase cyber insurance policies with care: ‘When considering their options, members should be aware that concerns have been raised about whether policies adequately cover the sorts of problems that solicitors are likely to encounter. Talk to your brokers, and make sure that if you purchase a cyber insurance policy it will be responsive to your needs. Anecdotally, there is a lack of confidence in cyber products and their ability to deliver.’

Knowledge of the product is improving, MacLean says: ‘Cyber insurance is better understood than it was when first introduced. Firms are recognising that its primary value is to provide support in the immediate aftermath of a cyber event.’

Presentation  

For firms working on their PII renewal, Lee advises: ‘We encourage members to talk to their brokers, to make sure that the proposal form clearly explains what they are doing to improve their risk profile. This can translate into appreciable savings on your premiums.’

Boehmer says: ‘A well-prepared presentation that offers insight into the practice, the work performed, and risk-mitigation strategies can reduce the volume of questions from insurers.’

 

A list of participating insurers, including contact information and credit ratings, is available from the SRA here.