The Silly Season - Law Firm Professional Indemnity Renewal
Since the abolition of the single renewal date for law firms in England & Wales, for many it remains the silly season, largely due to the number of renewal proposals sent blindly to law firms in the hope that they will be completed and returned. There will however be added focus for this year's renewal due to recent events, and the dust is yet to settle.
The Professional Indemnity Insurance (PII) topic has been one of recent debate due to the SRA consultations reducing the minimum level of cover required from practitioners to £500,000. This decision was not shared by the Law Society, who made a plea that the level remains at the compulsory £2m for partnerships and sole practitioners, as it is felt that the reputation of Solicitors will suffer as a result. The decision is still subject to approval from the Legal Services Board, but it is anticipated that it will be part of the 11th version of the handbook, due to go live in October 2014.
The recent practice note released by the Law Society on 2nd July 2014 is a clear guide of the obligations a firm has to meet to obtain cover, but doesn't make reference to the recent consultation. The practice note is a full amendment on the last version of August 2013 and firms should be up to date with the same.
The note recommends that you should have submitted your proposal by mid-July. This is a view that I share as every firm should have an open and honest dialogue with their broker about the forthcoming renewal, particularly if strategic plans are being made, such as a merger or acquisition. Considering the reduction in the number of law firms recently published this would indicate there are a number of firms closing, and therefore having run-off cover implications or successor practice issues for those being acquired. Firms should take great care when undertaking their due diligence processes upon acquiring other practices, and quite often specialist brokers will have a broad knowledge on the subject and can offer guidance. File review is a key to process for any firms on the acquisition trail with clear indemnities in place at the outset.
The renewal proposal form has become standardised over the years, but for certain areas of work, such as Property, there are always some difficult questions. It is important that you have accurate data to back up your submissions, otherwise this could prove costly. Remember, PII is one of the largest overheads a firm has and the cost should be apportioned to each work type in a fair manner. Most brokers are able to give a 'weighted' allocation for the overall premium and by doing so will enable law firm financial managers to evaluate the data and the effects on profitability of each work type.
Any decent insurer will expect to see evidence of risk and financial management within firms, and therefore having the Lexcel accreditation can only be an advantage. Many firms expect vast reductions in premium as a result of obtaining Lexcel, but this is not entirely realistic. The day may come when some insurers will not place cover for firms without Lexcel and they would be right to do so under principle 8 of OFR, but that day isn't quite here yet.
Ultimately firms should select their insurer wisely. There are still many insurers from which to choose, and consideration should be given to the financial stability of each company.
The risk of taking a cheaper option may result in one outcome..."buy cheap, buy twice."