Professional indemnity

Articles

Balva was third biggest indemnity insurer

Law Society includes unrated insurers in guide but gives warnings

Balva: learning the unrated lesson the hard way

The collapse of Balva will make many smaller firms weigh up the benefits of staying in business compared with the risk of potentially very significant personal liability, says Jason Nash

Unrated and unreliable?

Not all SME law firms support the solicitors' representative body's stance on unrated insurers

Balva wound-up over capital adequacy concerns

Decision does not yet amount to an 'insolvency event' under SRA rules that would force firms to seek alternative cover within four weeks 

Fresh concerns over unrated insurers after Balva suspension

Transfer to another unrated insurer has 'destabilising effects'

PII Focus | The big insurance renewal: small firms reliant on unrated insurers will face a difficult task

This year will be the last in the past 40 years where firms will have to renew compulsory professional indemnity at a set date, but unease over unrated insurers and the general rise in risk in the market make it one of the most challenging, says Frank Maher

PII Focus | What can the market expect this year?

Solicitors Journal asks brokers, barristers, experts and solicitors what they expect from professional indemnity after June renewals

PII Focus | The solicitors market: an attractive proposition for insurers from October

2012 saw the rise of the unrated insurer. It was an unhappy experience for a number of firms, as indemnity partners all over the country became experts in the eligibility criteria for the Financial Services Compensation Scheme. The Law Society published its first ever advice on “insolvency of a qualifying insurer”. Our regulators continue to make it clear that they do not vet, approve, or regulate, qualifying insurers and the benefits of a rated provider are being pressed heavily on us, by the rated providers. “Financial strength” will resonate through their typeface in the marketing material this summer. It is possible that the solicitors market will become even more attractive for both rated and unrated insurers this year. With effect from 1 October 2013, firms without insurance will no longer go into the ARP. They will have 90 days to obtain cover with a qualifying insurer; if they don't get it they will have to cease practice. All of this, together with changes from October 2012, means that the financial burden of those firms and the ARP on qualifying insurers will continue to reduce. 2012 saw a modest reduction in the total premium income for qualifying insurers. 2013 is unlikely to see a significant change, one way- ?or the other.So who are the winners and losers and where is the smart money this year? Estimates for the 2012/3 year of indemnity suggest that up to a quarter of firms took out their insurance with unrated insurers. Almost of those were small firms – sole practitioners or two to five partner firms. In the meantime the claims experience is not getting any better in the areas typically undertaken by smaller firms. Some insurers saw increases in the number of residential property transaction, and trusts and probate claims continuing from 2011/12. Some firms will continue to feel  pressure to pay the lowest price. Whether this is enough to buy them financial strength will turn predominantly on their claims history and risk management. There are though some new factors. Insurers will be looking closely to see whether firms have embraced the introduction of COFAs and COLPs to overhaul and improve their risk and financial management systems. Client acceptance procedures and funding arrangements are the key areas to be able demonstrate strong systems and supervision in. Changes to CFAs, the introduction of DBAs and the continued expansion of third-party funding are all areas affecting a firm's financial stability and law firm stability has shot up the agenda of insurers over the last year.For the larger commercial firms 2012 saw rates levelling out for those with a typical claims history. Fifty per cent of the total premium was attributable to the top 100 firms and the insurance was divided between just six insurers. The financial strength of the provider has not been jettisoned amongst the top 100. Those difficult conversations on premium quotes between the insurance partner and the managing partner have their limits. The greater concern is perhaps on the excess layer programme. Higher value claims are increasing for some and rates are likely to respond accordingly.  152 ABSs have now been licensed by the SRA alone and present, particular challenges for insurers in defining the scope of the cover for legal activities and integrating it with the other cover for the firm. The ABS will inevitably attract some with an entrepreneurial streak and will be the vehicle for new business models. A number of non-UK bar associations looked on askance at the development of the ABS in this jurisdiction. In July 2011 the German Federal Bar Association reported “We believe this to be a serious threat to the independent professional judgement of the lawyer employed by such a firm.” The introduction of any new regime attracts doubt and criticism but ABSs are here to stay. There will be some knocks along the way and the German Federal Bar Association will tell us “we told you so” when inevitable serious professional misdemeanour occurs. But one of the key factors in managing these particular risks, and the factor that the careful insurers will be looking out for, is the infusion of each of the big four ethical rules from the SRA's Code of Conduct into the firm's culture and systems. If the firm gets that right, then not much else can go wrong. If it gets it wrong, then the ingredients are all there for real trouble. The limit of the SRA's penalty imposing powers for an ABS is a whopping £250,000,000.