Late for an important date

As the deadline to renew professional indemnity cover looms, firms are finding the process even more surreal than expected, with insurers quoting previously unheard premiums and in some cases simply refusing to quote.

One partner at a two-partner firm in central London, who wanted to remain anonymous, said he had been quoted an 80 per cent increase despite a near impeccable claims record.

'Our current insurers have given us a 'go away' quote,' he says. 'The truth is that they and other large insurance groups don't want to insure firms with fewer than five partners '“ which happen, still, to be the majority of law firms in this country.' With just ten days to go before 1 October he remains confident that his broker will find cover for less, 'but we are expecting to pay a lot more than last year'.

Battle for cover

He is one of many solicitors battling to find affordable cover and fighting off the other two vultures circling over weakened firms: the credit crunch and the increasing weight of regulation.

The Law Society's PII helpline, launched just over a week ago to help practitioners struggling with the renewal process, has received a growing number of calls from small firms in a similar situation, in particular sole practitioners and two to three-partner firms.

'Firms are encountering serious difficulties and are being quoted premiums way beyond their means,' says Nigel Day, managing partner at Hague Lambert in Manchester and chair of the Law Society's indemnity sub-group. He adds that some firms have managed to get a better deal after haggling with their brokers but the situation remains worrying.

In the main, firms that have encountered difficulties are those with a chequered claims history, but, according to the Law Society, even firms with clean claims records and good risk systems in place are also being refused cover. Unhelpfully, as insurers do not have to provide reasons for the refusal to quote, some simply cite market forces for their decisions.

Back in spring, the Law Society circulated recommendations encouraging lawyers to apply early and take care with their proposal forms. In July solicitors were already saying that despite following this wise advice they had to chase and chase to get a response from the insurers.

Two months on there seemed to have been little improvement, with anecdotal evidence that insurers are only responding late in the day. Worse, there are also reports that insurers are giving firms as little as four days and, in some cases, just 24 hours to respond.

On the face of it, a solicitor being quoted a premium at a semi-realistic level should be confident that he is regarded as an insurable risk and therefore able to find alternative cover elsewhere at a lower cost; but in the downturn the rules of the game are skewed.

'There is a lot of fear in the market,' says Elliott Vigar, head of regulatory at the Law Society, 'in the current climate even if a quote is inflated a solicitor will be less likely to run the risk of being unable to find cover and will accept the quote.' Much to Vigar's regret, the practice is not just unhelpful but it is also contrary to the guidance that was agreed earlier in the year between the Law Society and industry representatives.

Until last year the view that the profession was a good risk led many solicitors to wait until closer to the deadline to negotiate renewal. But the Law Society is warning that this tactic, which some already regarded as risky, could be plain dangerous.

'The market has hardened as a result of insurers' acute cautiousness,' Vigar continues, 'and there's not going to be a good deal by negotiating late.'

Failed measures

Meanwhile, measures that observers hoped might help improve the renewal process did not seem to make much difference. One suggestion was to push back the renewal date, giving more time for solicitors to arrange suitable and affordable cover. According to Nigel Day, the SRA was not prepared to entertain this option.

The arrival of two new entrants, Hannover Re and XL, also raised hopes that the resulting wider choice would heighten competition. Alas, Hannover Re really only targeted three to four-partner firms, which do not appear to have been as affected. XL, on the other hand, saw an opportunity in the sole practitioner and fewer than three partner market, but that has not resulted in any specific improvement for those concerned.

'We were keen to have a new entrant and we did all we could in requesting that SRA expedite XL's recognition as a qualifying insurer, and it was good to have a new provider, but according to our sources they appear to be quoting similar premiums to other insurers.'

Against this background talks about a SIF-style system were resurrected here and there. According to Nigel Day though, the majority of the profession remains opposed to a compulsory scheme, with many solicitors fearing that the good would subsidise the bad.

Who ultimately underwrites the risk is a question that will not go away as the renewal date comes and goes. What is clear is that the current system, with the collective scramble for cover once a year in an unsupervised market, cannot continue as it is and all stakeholders '“ the Law Society, the SRA and the insurance industry '“ will have to work together more constructively.