Editor's blog | In search of a suitable indemnity model
Guess who was the third largest indemnity insurer by number of firms last year, managing to pip established brands like Zurich, First Title and Allianz, and coming in just after Travelers and XL, respectively in second and first position. Yes, you are right: Balva.
Seeing the troubled Latvian insurer creep towards the top of the league may seem an unwanted reflection of the sorry state of the indemnity market, but the reality is more subtle.
Balva signed up 9 per cent of law firms last year but it is well behind Travelers (15 per cent) and XL (23 per cent). Zurich is a close fourth at 8 per cent, and First Title fifth at 7 per cent. Cross-check this data with market share by volume of business insured and Balva falls in eighth position. XL and Travelers still lead with just under £40m and around £26m worth of premiums respectively. Balva meanwhile raked in just over £15m.
The real concerns are twofold. The first is that many of the insurers that came to the market following the abolition of the solicitors’ indemnity fund (SIF) have now left it. Hiscox withdrew in 2010, RSA is not accepting new business, and Aviva is no longer interested in SMEs. Lawyers, once regarded as a safe enough profession, were attracting more claims than anticipated. The recession hasn’t helped, with insurers looking at their own margins much more closely. The result is a diminishing number of providers, which means less competition and reduced choice. The closure of the assigned risks pool (ARP) may help some reconsider the position, but in the current economic climate, nobody is going to come rushing back to the legal sector.
Which takes us to the second concern: whether unrated insurers, with whom many small firms have policies, are a safe choice. For some, Quinn, Lemma and Balva are evidence that unrated insurers are inherently risky. Not everybody agrees but the question has now moved to the SRA, which is considering whether a ban would be appropriate. There are several possible issues with a scheme allowing only rated insurers, from potentially breaching EU law on freedom to provide services to reducing choice further.
As an independent regulator the SRA cannot endorse insurers. But there is nothing stopping the Law Society from doing so, much as it does with other suppliers to the profession. Chancery Lane said rumours that they were planning on setting up their own scheme were incorrect. There are certainly plans to support firms beyond the usual guidance to check the suitability of insurers. These, we are told, will be unveiled later this summer. Will they be based on joining one of the quality schemes the society is rolling out? It is too early to say, the answer was. This would be a neat link up, but expect non-scheme members to find this unfair. And rightly so.