On the evening of Monday 23 March, Boris Johnson announced we should all stay home. The 1 April renewal for solicitors’ Professional Indemnity Insurance (PII) was only days away and 33% of our solicitor clients renew on this date.
Would it work with solicitors, brokers and underwriters all working from home on laptops and phones? The answer is a resounding “yes it did”.
We are pleased to report that COVID-19 was not a barrier to business for 1 April 2020 renewals. Our own IT systems were able to cope with remote working as were those of Participating Insurers. Our strong relationship with the insurers we work with meant that we were able to engage with ease and receive quotes for our clients without difficulty.
We are in a hard market for Solicitors' PII
Premiums for solicitors’ PII increased through 2019. For 1 April 2019 our analysis showed an average rate increase of 4.87% and at 1 October 2019 the average was 12.94%. This trend has continued and those firms renewing on 1 April 2020 saw further increases. We consider this to be the hardest market since the profession moved their PII arrangements from the Solicitors’ Indemnity Fund to the open market. This was anticipated even before the COVID-19 crisis. In our Market Report published in January 2020 we advised that we expected to see further rate increases for 1 April renewals and that is exactly what has occurred.
Fortunately there is still plenty of A-rated capacity for the primary market, however appetite is more restricted than we have seen historically. We also saw this last year. Conveyancing is certainly an area where insurers are looking to control their exposure and when it comes to new business many are requiring that conveyancing work does not exceed a limited threshold. Firms with a significant conveyancing practice were, therefore, more challenged when it came to sourcing alternative quotes to measure against the renewal terms they received from their current insurer. At Howden, we have direct access to a large range of A-rated insurers, including exclusive arrangements with some. This proved to be a huge advantage when it came to sourcing alternative quotes.
Premiums for excess layer insurance also increased further for 1 April cases. There are also capacity issues in the excess layer market, with some insurers withdrawing from this sector over the last 18 months. There are now few options available and prior to the 1 April renewal one excess layer insurer even introduced their own questionnaire that firms were required to complete before a quote was forthcoming. Notwithstanding the increased premiums, excess layer cover still represents good value for money.
Eighteen month policy periods continue to be rare in the current market. Of the firms we renewed on 1 April we had 69% that had just come to the end of an 18-month deal. In contrast, only 12% of the book renewed on an 18-month deal. Where the extended policy period was available, insurers did not use a straight pro-rata premium calculation, but offered with a rate uplift being applied to the additional six month period.
We are now turning our attention to 1 October, which still remains the most significant renewal date for solicitors’ PII. Prior to COVID-19 we anticipated that there would be some additional rate increase in October, and firms are now asking whether COVID-19 is going to harden the market even further. It is still early days and the answer will depend upon the view that insurers take regarding an increased level of risk. Remote working does bring challenges with regard to issues such as supervision and confidentiality and as deals fall apart clients who have suffered loss will look for someone to blame. We know that solicitors are always a target and to the extent that there is any increase in claims activity as a consequence of COVID-19, then that will inevitably filter through insurers’ rating models and impact premiums.
At this point, there is also a question as to whether there will be a reduction in traditional financing arrangements that are available for both PII premiums and practising certificate renewal fees and it is possible firms will see a greater demand for guarantees or security over personal assets. We therefore recommend that firms start to consider financing options as soon as possible.
5-Point Action Plan for 1 October 2020 Solicitors; PII Renewals
If your firm renews their PII on (or before) 1 October, then we urge you to start working on this now. This is not the year to leave it until the last minute. Howden offers the following advice:
- Talk to your broker early to understand what you can expect from your insurer with reference to the profile of your particular firm.
- Agree a timeline with your broker for submission of your proposal form and ensure that you then provide appropriate deadlines to those in the firm who need to provide you with the information that is needed.
- Take time and care with your proposal form and accompanying documentation to ensure it provides the best possible presentation of your firm. Your PII premium represents a significant spend in your budget and justifies the investment of time to complete your submission.
- Review your budget for PII and make adjustments based on advice from your broker.
- Consider all available finance options. Given the financial pressure created by COVID-19, we expect that more firms will need to look to finance their premiums for the 1 October renewal. If your firm is under financial pressure this might not be as straight forward as it has been historically. Allow yourself plenty of time to source available options and find the best deal.
Stay tuned for more information, analysis and advice in our full Market Report to be published in June 2020.
Neil Pointon works in the Legal Professions team at Howden UK Group
Tel : 07967 099508
Email : firstname.lastname@example.org