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Ignore risk management at your peril! Implications of a hard market…

After the closure of the Solicitors Indemnity Fund many firms enjoyed significantly lower insurance premiums – but could the honeymoon period be coming to an end sooner than expected? John Verry, the risk management practice leader at St Paul International, assesses the importance of risk management following recent suggesting insurers are considering raising their indemnity rates by ‘30 to 40 per cent’ this year.

25 April 2002

In September 2000, experienced commentators were convinced that the insurance market had artificially lowered the overall price of insuring the profession. The last year of SIF saw a total contribution of some £250 million, whereas the total premium paid to the commercial market in the first year was under £150 million.

Year two saw a further fall in real terms. Although law firms paid a total premium of £162 million, this increase was outstripped by an average 10 per cent rise in gross fee income across the profession.

At first, wide variations in pricing made it difficult to judge which insurers had got it right. Now it appears that those firms whose insurers quoted cheap prices to obtain market share may now be subjected to serious price volatility.

One would have to look as far back as 1987 to find a year when the cost of claims was as low as the premium being paid by the profession today. The actuaries and underwriters have not yet comple...

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