Renewal game by Janine Parker, Paragon
This article was originally featured as a column in the July issue of LPM. To read the issue in full, download LPM.
Insurers are now, unbelievably, preparing for the October 2017 solicitors professional indemnity insurance (PII) renewal season – much to the delight of law firms around England and Wales, I’m sure. What can we expect this year in terms of pricing? And what should firms consider when choosing their insurer and insurance partners?
Over the past five years, premiums have gradually reduced. This followed some challenging years from 2008 to 2010, when many insurers felt the impact of the credit crunch and recession. Since then firms have enjoyed a greater choice of A-rated insurers, and prices have dropped because of this competition. But the economy is cyclical and this trend can’t continue forever. While the claims environment is still relatively benign, attritional claims still occur.
Wills, trusts and probate are areas of practice where claims continuously manifest themselves, regardless of where we are in the economic cycle. In addition, claims in conveyancing still lead the way in terms of both volume and quantum. If we factor in cyber fraud losses involving the client account, one can see that it would not take a much of a shift in market conditions for a portfolio to become loss making.
Insurers are conscious of this and it has to be questioned whether rates can decrease much further without making insurers too vulnerable. Therefore, what should be your priority when renewing your PII?
Most firms put price as the number-one factor when deciding on an insurance provider, but clearly this shouldn’t be the only consideration.
The financial rating of an insurer as well as their reputation should also be a factor. How long has your insurer been in the market? Do they have a consistent and long-term underwriting strategy that seeks to deliver stable prices for your practice?
Continuity of insurer is also important. Should the market turn, those firms that have demonstrated loyalty will find themselves in a much stronger negotiating position. If an insurer sees that a firm has changed carrier every year, it could be questioned whether that insurer would work as hard to win the business of a firm when in all likelihood they will lose it the following year.
Transparency is also something a firm should consider. Ask your broker to explain the underwriting process – often, understanding how your insurer calculates your premium can assist your practice with business strategy in the future. For example, if offering conveyancing is costing you £10 on PII for every £100 you earn in fee income, questions about pricing or the viability of undertaking such work should be asked.
Finally, ask your broker whether they have direct access to your insurer – this is the best way to ensure your risk is most accurately broked and the most competitive terms are obtained. When brokers need to access other brokers (as they do not have the relationships themselves) information can become diluted. The process becomes less effective at achieving the best outcome for your practice. Problems are also likely to arise regarding handling claims efficiently and obviously there’s a risk of being overcharged for broking services.
In summary, there are many reasons to be cautiously optimistic about the forthcoming renewal. That said, we can never be 100% certain about the potential challenges ahead.