The two most common dates for the renewal of solicitors’ professional indemnity insurance are 1st April and 1st October, and the April season is now well underway. The good news is that the market continues to be as competitive as it was last year. Insurers are keen to write solicitors’ PII business and all insurers in the solicitors’ PII market at the present time are well-rated, with the majority having a directly held “A” rated status. While the historic concerns about insurers with a poor rating (or no rating at all) are largely behind us, it is important to be aware that issues can still arise with insurers’ ability to pay claims. The recent demise of CBL Insurance, that had only entered the solicitors’ PII market in the last two years, is a sharp reminder of this.
Many legal practices are achieving a reduction in their PII premium if their profile was broadly the same as it was at the previous renewal. Others are containing or avoiding an increase in their premium that would normally have been expected. This is partly due to the pricing competition that is being generated by the availability of insurance capacity. Another important factor is the broadly-held view that we are now in “safer waters” from a claims perspective. Claims activity has certainly slowed in recent years as we move further away from the fallout generated by the last recession.
While this is all good news, we do not expect that the insurers’ current appetite, capacity and pricing can last much longer. It is always important to ensure that you remain informed and keep looking ahead. CBL Insurance had their rating downgraded and was then placed into interim liquidation within the space of a month. This shows just how quickly things can change.
A change in market claims activity is certainly an issue to watch. For example, in the last year the media has been full of reports on onerous ground rent clauses in relation to new-build, leasehold homes. Solicitors who advised on the purchase of these properties have been identified as being in the firing line for professional negligence claims for alleged poor advice at the time of purchase. To date the claims activity in this area has been very slow and it is being mitigated by remedial action that has been taken by some house-builders. We are quietly confident that the suggested market loss figure of £500 million has been significantly overstated, but we will need to adopt a “wait and see” position. Any marked increase in claims activity could change the landscape.
Another issue that could influence the April renewal season is the appeal in relation to the rather bizarre decision in Dreamvar v Mishcon De Reya. This was a case where the purchaser’s solicitor was held to be subject to an implied duty to only release funds to a bona fide vendor – despite the fact that the vendor was not their client and they were not responsible for undertaking the relevant identity checks. The appeal hearing for this case, and others based on similar facts, was heard in late February and we eagerly await the decision. While we hope that there will be a “sensible outcome” with the decision being overturned on appeal, we cannot be certain. If the decision is upheld, then insurers will be concerned and we would expect to see some upward movement in the rate for conveyancing work. It could also impact upon insurers’ appetite for conveyancing generally.
While the above examples are specific to conveyancing it is important to understand that if solicitor specific losses and/or external factors such as hurricanes or other natural disasters bring about a “hard” market, this will impact all areas of practice and increase the cost of PII for all firms.
We are also in a time of change when it comes to the solicitors’ profession and this could influence the appetite of the insurance market. For example, the SRA is clearly poised to implement a significant change to the way solicitors practise, as highlighted in their "Look to The Future" consultations late last year. Some of their proposals are concerning and Howden responded to both consultations. Please let us know if you would like to see a copy of our submissions. We also expect that the SRA will shortly revisit the Minimum Terms and Conditions (MTCs) on which insurers currently provide cover. Meanwhile, the accountancy profession continues to eye what has historically been “solicitors’ turf”. The Institute for Chartered Accountants of England and Wales (“ICAEW”) has now applied for leave to bring a judicial review of the decision by the Ministry of Justice last year refusing an application by ICAEW to regulate all legal activities. Artificial Intelligence is also on the horizon and receiving an increasing level of interest within some sectors of the legal profession. Insurers will be considering the impact of this for the future.
As a specialist PII broker in the legal sector, Howden maintains a watching brief on all these issues. We believe it is important to be closely engaged with what is happening both in the legal profession and the insurance market generally. By doing this we can provide the best possible assistance to our clients. Our client base comprises over 650 legal services firms from sole practitioners to Top 100 firms, generating £45m+ in premium. Given our size in the market we have a strong negotiating position with insurers, which we use to the best advantage of our clients.
Howden have identified a number of “A” rated PII insurers that recognise the positive impact of the assistance Symphony Legal provides in risk profile. Please feel free to pick up the phone and talk to us if you need assistance or want to learn more about how we can help.
For a full copy of our most recent market report we refer you to: http://www.howdengroup.co.uk/en/knowledge-base/professional-indemnity/2016/howdens-solicitors-pii-market-report/
Jenny Screech LLB(Hons) works in the Legal Professions team at Howden UK Group
Tel : 020 7398 4894
Email : Jenny.Screech@howdengroup.com