Update: Solicitors’ Professional Indemnity Renewal 2011

By Mark Philmore
The Old Bailey reflected on a window

We have pleasure in presenting to you our latest update on the Solicitors’ Professional Indemnity Insurance Market for our legal clients.

In this edition, we look at the results of the recent SRA consultation on the minimum terms for Solicitors’ PI Insurance and assess their likely impact on the market for 2011.

In conjunction with Manchester Law Society, we have also arranged a ‘Question Time’ event on this subject, involving leading figures from the PI insurance market and the SRA.

We would like to invite you and your colleagues to this topical debate.

We will of course be contacting you in the next few weeks to arrange our usual pre-renewal meeting.

SRA Changes

The recent changes agreed by the SRA can be summarised as follows. They mainly concern the operation of the Assigned Risks Pool (ARP), which is the emergency insurance of last resort for those practices who cannot obtain cover through the conventional PII market:

  • From October 2011, the amount of time a firm can remain in the ARP will be reduced from 12 months to six. After that it must obtain conventional cover or close down.
  • From October 2012, the ARP will be funded jointly by qualifying insurers and the profession, with liability for claims arising from firms that have not taken out insurance moving from the ARP to the compensation fund;
    The  ARP will be replaced in October 2013 by a system whereby insurers will offer a three-month extended policy period to firms that cannot obtain professional indemnity insurance for the following year;
  • The single renewal date will be maintained until October 2013 to facilitate the transition to the new arrangements;
  • Claims from financial institutions will not be excluded from the minimum terms and conditions of insurance for the time being, but this will be reviewed with the possibility of the change occuring in 2013.

Short term impact

Firstly, many PI insurers have taken the view that the changes to the minimum terms/ARP arrangements do not go far enough, early enough.  Insurers will still be exposed to their fair share of ARP claims in 2011, which by definition arise from the work of practices the market didn’t want to insure in the first place, as well as to claims arising from the automatic provision of six years’ ‘run-off’ cover, when practices come out of the ARP and are still unable to find cover in the market.

Furthermore, insurers struggle to collect the premiums for ARP cover and have currently no prospect of collecting any further premium for the six year ‘run-off’ exposure. As a consequence, many insurers who pulled out of the solicitors’ PII market because of the ARP rules are currently reluctant to dip their toes back in and other insurers, who may have decided to come into the market for the first time, have decided not to do so until the ARP is reformed further.

However, there is some speculation in the market that some new insurers may enter the fray this year, attracted by the recent increases in premium rates.

Whether or not this comes to pass remains to be seen, but we will be keeping a close eye on the situation.

A conservative approach

We therefore anticipate the same conservative approach from the mainstream markets this year. Additionally, we also feel that one or two of the newer opportunistic markets that were very competitive in 2010 will take a more cautious approach.

We should start to gain a clearer picture of how the market is likely to respond in the coming weeks but the overriding message, as in previous years, is to start the process early and to make every effort to positively differentiate your business from your peers.

Mark Philmore, ACII, Chartered Insurance Broker

Director, MFL

Direct dial: 0113 366 2359

Switchboard: 0113 366 2274

Fax: 0870 855 6441



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