Paragon: Prime position
The analysis is still incomplete but the overall impression resonating from the London insurance market is that the majority of insurers achieved some level of rate increase on their portfolios post-October. Somewhat paradoxically, the excess layer insurers appear to have achieved greater rate increases (between 5 and 15%) than the primary insurers, although this could be due to the large premium differentials that exist between the primary and excess layers.
As always, one or two insurers were able to offer significantly lower premiums in comparison to the rest of the market but the long term sustainability of this strategy should be questioned. With the continued backdrop of economic uncertainty and the knowledge that many PI Insurers are losing money, we will consider whether rates have increased sufficiently or we will see further rate increases throughout 2019.
Finally, what can your firm do to best navigate the potential challenges it faces? History demonstrates the insurance market is cyclical and the solicitors’ professional indemnity market, is especially sensitive to any economic disruption.
There have been many challenges writing solicitors PI for insurers since the demise of the Solicitors Indemnity Fund (SIF) for insurers. Notably, the breadth of cover provided by the SRA minimum terms and conditions of professional indemnity insurance is far greater than the majority of other insurance policies. This makes it a very easy target to attack should an issue ever arise. As a result, very few insurers have made a profit writing this class of business and there comes a point when adjustments have to be made if a company is to continue in an area. As previously written, several PI insurers have already withdrawn from the class, which in itself has affected pricing. For insurers to write profitable books of business, rates will have to increase further and it is therefore likely this will continue in 2019.
It must be remembered that no one law firm is the same and that there are many factors that influence how an underwriter decides what premium to charge. That said, if your firm’s turnover increased this year and you managed to obtain a flat or decreased premium then you have likely outperformed the market in obtaining competitive terms. When selecting an insurer, the track record of this insurer along with the size and security of their balance sheets must always be considered. While most insurers are now A rated, there can be huge differences in the capital base of insurers. Therefore, how can you ensure you mitigate you own risk and best navigate an increasingly challenging insurance market?
- Maintain and ensure all your staff implement your risk procedures – this has to be a continuous process
- Don’t forget that the work you carry out now will be the work that will come under scrutiny in the future should the economy change.
- Ensure that you audit all fee earners on a regular basis – this can help identify potential issues at a far earlier stage.
- Make sure your firm’s file management system is accurate and thorough – pay particular attention to telephone notes and memoranda of conversations.
- Pay particular attention to conveyancing – 50% of claims come from this area.
The above is by no means all you should do and may appear simple, but it will be your first line of defence should a claim be made – and maintaining a good claims record will be the most influential factor in keeping your insurance premium at a reasonable rate in a hardening market.
This article appeared in LPM November 2018 - Boxing clever