Our Placement Director, Kevin Hood, reviews the October solicitor Professional Indemnity Insurance (PII) season
The October 2020 renewal season was undoubtedly the toughest that law firms have experienced in terms of ProfessionaI Indemnity (PI) Insurance for over a decade. Firms were faced with a perfect storm of issues, including hardening rates, less competition for insurers for new business, excesses increasing (and new excesses for certain types of conveyancing transactions added) and any firms that had claims activity in recent years were further penalised. And as if this wasn’t enough, the impact on firms due to Covid-19 and lockdown added a further unwanted headache into the mix.
In terms of rate increases, there was a large variance between insurers’ requirements and also between certain work types. In general however, the minimum increase started out at around 15%. For firms with a heavy conveyancing exposure, as an example, rate increases of over 50% were not uncommon, even for firms with no claims activity. Due to the lack of competition between insurers for a firm of this type, insurers were able to carry this level of increase and retain the business.
Insurers also focussed more heavily this year on the financial stability of the firm before considering offering terms. In some instances, management accounts up to the end of August were requested to see how the firm was performing during and post lockdown. If the financials were not sufficiently strong, insurers were declining risks, leaving firms with little option than to renew with their existing insurer. We also saw insurers asking equity partners to sign personal guarantees in respect of future unpaid excesses and run off premiums.
The prospects for 2021 do not appear to be much brighter at the moment. The expectation is that rates will continue to harden, maybe not to the extent of this year, and insurers’ appetite will continue to be limited in terms of seeking new business. Even more focus will be placed on the financial position of the firm in view of the difficult economic conditions and it may well be not until 2022 that we start to see a softening of the market to any great extent.
How to prepare for your PII renewal in 2021
Our advice for preparing for renewal in 2021 is largely unchanged from this year. You should send your completed proposal form and market submission to your broker well in advance of your renewal date to allow them sufficient time to approach all potential insurers. In September, firms who left it late to send their submission were left with very little option than to renew with their current insurer, in some cases at very unfavourable terms.
Make sure your broker provides you with details of which insurers they have approached to ensure you have all of the relevant market covered. Be prepared that insurers will ask more questions of you than in previous years, so you may well be asked to provide more detail on conveyancing transactions, if applicable, up to date financial information and the overall impact of Covid-19 on your business now and in the future.
Find out more
To find out more about our Professional Indemnity services, please contact:
Kevin Hood – Placement Director
m: 07793 388049