A firm’s ability to present its strengths and, more importantly, explain how it is addressing any weaknesses will be key to capitalising on a soft professional indemnity insurance market.
Firms with the best risk profile will stand to secure the lowest premiums in a soft market. The most successful firms will possess most, and preferably all, of the following characteristics:
• Stable and good management,
• Sound financials,
• Commitment to and delivery of an effective risk management programme,
• A good claims record.
The soft market cannot last forever, so it may well be prudent to consider long-term policies and extended policy periods.
Firms lacking such characteristics will have fewer market options and could face increasing premiums and self-insured excesses.
The soft market can not last forever, so it may well be prudent to consider long-term policies and extended policy periods to remove any potential volatility in pricing.
Some firms have entered into a long-term agreement (LTA) with their primary insurer: this provides a 12-month policy with a fixed agreement to renew for a further 12 months at the same rate (or even premium), provided:
• Fees have not increased by more than a given percentage (typically 5-10%);
• Work profile remains similar;
• The firm does not merge or acquire another practice; and
• Claims do not exceed an agreed amount.
Learning lessons from claims is key, as are near misses or complaints that may indicate underlying problems.
Extended policy periods generally up to 18 months have also become popular. This allows firms to ‘lock’ into an underwriting rate and premium for a longer period than normal, thereby providing greater certainty for an extended period. An additional benefit is a little less paperwork, as the renewal process comes around just twice every three years.
Some solicitors have taken advantage of an option from Inter Hannover (an exclusive market to Lockton) to fix the premium for two years without any caveats for growth in fees or claims. This has proven to be particularly attractive for budgeting (for what is typically the third-highest expense for a law firm after salaries and rent), while at the same time spreading the cost by premium instalments.
Good risk management and a low volume of paid or reserved claims continue to be the best way to minimise premiums. Learning lessons from claims is also key, as are near misses or complaints that may indicate underlying problems whether that is from an individual solicitor, department or signs of a wider management problem.
It may be difficult to identify trends when claims appear to be “one off”, but drilling down to the underlying issue may reveal the real cause. Lack of supervision, over work, personal issues at home or stress may easily be overlooked but, if identified, can help prevent further problems.
Insurers generally look very positively on those firms with an appetite to retain more risk.
Firms willing to take more risk on to their balance sheet by increasing the level of excess can produce worthwhile savings. It is essential to get the balance right, to ensure the retention of a higher excess does not unduly burden the principals, but provides sufficient savings in premium to warrant the increased risk to the business.
Insurers generally look very positively on those firms with an appetite to retain more risk, as it indicates that firm's confidence in their own risk management (and ensures they have “skin in the game”).
Meeting the underwriter provides a great opportunity to showcase the strengths of the firm, and demonstrate how the firm is run and that it takes risk management seriously. Although most policies are renewed for 12 months, a firm and indeed the insurer should be looking at this as being a longer-term relationship. A firm that has been with the same insurer for a few years will be building up a “premium pot” that will allow that insurer to take a more lenient view if faced with a large claim than if the firm had only been insured with them for a short time.
Solicitors are advised to begin the renewal process early, to gain the best chance of having several market options and avoiding the risk of having to secure insurance at the last minute which is likely, almost certain, to be more expensive.
For more information, please contact Steve Holland on:
+44 (0)20 7933 2444