Professional Indemnity Insurance Update – an interview with Gary Horswell of specialist insurance brokers, Ntegrity.
Everyone knows that the insurance market looks a lot different to the ‘good times’ of just a couple of years ago.
With the global economy facing a severe shock, we wanted to know what impact that is going to have on solicitors’ professional indemnity insurance. We are already seeing anecdotal evidence of roughly 25% increases on premium across the board.
So we chatted to Gary Horswell for the inside track.
What does the PII market look like at the moment, Gary?
PII premiums were rising generally through 2019 as Insurers reacted to several years of unprofitable underwriting. A number of Insurers that focussed on the legal profession exited the market, and two prominent broker owned underwriting agents (Maven owned by Aon/ Lockton owned Omnyy) lost their Insurer support following poor underwriting results. Fewer Insurer options drove premiums higher, and made for an uncomfortable renewal season for some practices forced into a change of Insurer, or those coming out of 18 month policies.
2020 continued this trend with no new Insurers entering the market. Other than where Insurers had to be switched following an exit, we believe that the vast majority of firms stayed with their existing provider in 2019 and early 2020.
Covid-19 has added additional layers of challenge as Insurers also adjusted to remote working. The crisis is likely to be the biggest insured event of all time, eating up insurer capital and prompting further review of risk appetite. Initial claims arising involve areas unrelated to PII on the surface, such as Business Interruption, Travel, and Event Cancellation (cancelling Wimbledon alone is reported as being a claim of c.£100m), but losses on this scale will leave Insurers with some hard choices over the types of risk where they will deploy capital in the coming years.
High profile Insurers of solicitors PII are centre stage with many of these issues and we will see changes in risk appetite and perhaps more market exits.
How does that affect law firms?
Insurers are already asking for more information on the financial health of the practice and the impact of Covid-19.
Much more in depth scrutiny of individual risks is a certainty, and firms may find a more limited range of options being available.
This makes it important to start renewal as early as possible, with a clear to follow presentation for Insurers to assess, and by choosing an independent specialist broker with a breadth of Insurer options. I would also recommend paying attention to how the finances of the business look when presenting them to Insurers.
What is the outlook for the market over the next couple of years? Will available cover and premiums be affected?
When previous hard market phases for solicitors PII have been experienced, the arrival of new Insurers has kept premium increases in check. Only time will tell if the impact of Covid-19 is manageable to the point that new Insurers will be tempted in.
I think it may be some time before there is sufficient confidence for this to happen and realistically, firms should prepare for higher costs and fewer (or even no) options for those with less attractive risk features.
Well run practices in good financial health are likely to always have more solutions open to them.
How can law firms position themselves as a ‘good’ insurance risk, and what gives insurers comfort?
Firms can help themselves considerably starting with the clarity of presentations – a regular complaint from Insurers – specialist brokers offer invaluable guidance on this.
Working with a good accountant on the financial position should be a priority.
Other than this, it helps if the firm can demonstrate self-awareness of the exposures inherent in the types of work they undertake and the mitigation controls deployed. In presenting the claims record Insurers look for the remedial actions firms have taken to avoid recurrence.
Are there any updates on insurance products available for freelance solicitors, and post-SIF policies?
Development of specific products for freelance solicitors has been hampered somewhat by the distraction of remote working and since March available capacity has been focussed on looking after existing clients.
Insurers we were discussing this with were not convinced that the reduced scope of activities permitted would lower consumer expectations when using a freelance solicitor.
Even though the SRA freelance criteria makes it a requirement to advise consumers that PII cover is not the same as for a regulated practice, Insurers did not feel it would that consumers would appreciate the difference and they will expect the same degree of protection.
Several Insurers commented to me that if a freelance policy needs to provide similar scope of cover to a regulated practise, albeit with a lower limit, this is still a large exposure for them and in situations where no direct oversight will exist.
We know of one product on the market at present but the premium costs appeared to be similar to those of a regulated firm.
Post SIF closure run off policies are not yet available despite supportive comments from some insurers. I suspect they are waiting to see if the date for SIF’s closure is changed, but undoubtedly if there is a demand from solicitors an insurance solution will be available nearer the time.
Gary Horswell, Managing Director, Ntegrity Insurance Solutions Limited
Gary is an experienced insurance broker who loves a challenge! He uses his strong connections with insurers, and at Lloyd’s, to get the right outcomes for clients and has often been able to help ‘distressed’ firms that are struggling to find affordable insurance elsewhere.
He works closely with affinity groups such as UK200Group and Bond Solon to provide insurance expertise for members.
Gary has also managed a global insurance programme for a well-known professional group for the past 12 years.