Worth all the fuss?


As another professional indemnity insurance season starts ahead of the 1 October renewal, solicitors will be considering how to complete their insurers' detailed insurance proposal forms. One section inevitably asks about a firm's risk management procedures. Given that insurance premiums have risen in recent years, seemingly irrespective of the effort put into implementing risk management systems, it is not unreasonable to ask what the payback is for all that extra work.


The answer, of course, is largely intangible, but vitally important for all that. Time spent on risk management should not be viewed as time lost to fee earning, but rather an investment in the future success and prosperity of the firm. Its value is best viewed in reputational, managerial and financial terms.


A firm with strong risk procedures and effective management controls will undoubtedly operate more efficiently. Errors will be reduced and the firm's reputation enhanced among existing and potential clients. A reputation for efficiency will secure far more recommendations from satisfied clients than a firm that has delayed, prevaricated or made mistakes.


The management time invested pays for itself though efficiency savings and by reduced time spent dealing with insurance claims. Clearing up the mess from a minor mistake can eat vast quantities of fee earners' time. Often it is senior fee earners who have to commit non-chargeable time and effort into correcting their juniors' mistakes.


This year more than ever, the financial benefits of quality risk management will begin to shine through - not so much perhaps in cash savings on insurance premiums - but in the avoidance of premium price rises and in the ability to secure insurance at reasonable rates.


A number of new insurers have entered the market in 2004, providing increased capacity and choice for firms. The rub is that insurers, like any commercial organisation, are in business to make profit &150; which means that they are primarily focused on securing the cream of the profession, to whom they will offer the most competitive rates. The winners will be the firms that can demonstrate rock-solid risk management procedures and excellent claims records.


Many insurers will expect to see evidence of a risk management audit and procedures implemented as a result. What about those firms that cannot demonstrate this level of excellence?


They will pay more for their insurance - and the very worst may even struggle to find an insurer prepared to take on their risk.



This column was prepared by AFP Consulting, a Division of Alexander Forbes Risk Services UK